-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PBMjEWwNG0C1NaL4GMAcnb74uKLl7wXLlGlozgKDrTgPcKK/zSha2E4Uf49ywNkT ieaUMGaPhA//gdJhiUZyIg== 0000950124-01-001969.txt : 20010409 0000950124-01-001969.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950124-01-001969 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUMULUS MEDIA INC CENTRAL INDEX KEY: 0001058623 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 364159663 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24525 FILM NUMBER: 1591377 BUSINESS ADDRESS: STREET 1: 111 KILBOURNE AVE STREET 2: SUITE 2700 CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4146152800 MAIL ADDRESS: STREET 1: 111 EAST KILBOURN AVE STREET 2: SUITE 2700 CITY: MILWAUKEE STATE: WI ZIP: 53202 10-K 1 c61336e10-k.txt ANNUAL REPORT ENDED 12/31/00 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 00-24525 CUMULUS MEDIA INC. (Exact Name of Registrant as Specified in Its Charter) ILLINOIS 36-4159663 (State of Incorporation) (I.R.S. Employer Identification No.)
3535 PIEDMONT ROAD BUILDING 14, FLOOR 14 ATLANTA, GA 30305 (404) 949-0700 (Address, including zip code, and telephone number, including area code, of registrant's principal offices) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: CLASS A COMMON STOCK; PAR VALUE $.01 PER SHARE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's outstanding common stock held by non-affiliates of the registrant as of March 16, 2001 was approximately $190.4 million. As of March 16, 2001, the registrant had outstanding 35,214,349 shares of common stock consisting of (i) 28,427,729 shares of Class A Common Stock; (ii) 4,479,343 shares of Class B Common Stock; and (iii) 2,307,277 shares of Class C Common Stock. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy Statement for the Annual Meeting of Shareholders, to be held on May 4, 2001, have been incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CUMULUS MEDIA INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
ITEM PAGE NUMBER NUMBER - ------ ------ Index....................................................... 2 PART I 1. Business.................................................... 3 2. Properties.................................................. 21 3. Legal Proceedings........................................... 21 4. Submission of Matters to a Vote of Security Holders......... 22 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 22 6. Selected Consolidated Financial Data........................ 22 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 24 7A. Quantitative and Qualitative Disclosures about Market Risk...................................................... 35 8. Financial Statements and Supplementary Data................. 36 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 36 PART III 10. Directors and Executive Officers of the Company............. 36 11. Executive Compensation...................................... 36 12. Security Ownership of Certain Beneficial Owners & Management................................................ 36 13. Certain Relationships and Related Transactions.............. 36 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................................... 37 Signatures.................................................. 49
2 3 PART 1 ITEM 1. BUSINESS CERTAIN DEFINITIONS We use the term "local marketing agreement" ("LMA") in various places in this report. A typical LMA is an agreement under which a Federal Communications Commission ("FCC") licensee of a radio station makes available, for a fee, air time on its station to a party. Such party provides programming to be broadcast during such airtime and collects revenues from advertising it sells for broadcast during such programming. In addition to entering into LMAs, we will from time to time enter into management or consulting agreements that provide us with the ability, as contractually specified, to assist current owners in the management of radio station assets that we have contracted to purchase, subject to FCC approval. In such arrangements, we receive a contractually specified management fee or consulting fee in exchange for the services provided. In this Form 10-K the terms "Company", "Cumulus", "we", "us", and "our" refer to Cumulus Media Inc. and its consolidated subsidiaries. "MSA" is defined as Metro Survey Area, as listed in the Arbitron Radio Metro and Television Market Population Estimates 1999-2000. For example, "MSA 100-283" would mean the 100th largest market through the 283rd largest market, as listed in the Arbitron Radio Metro and Television Market Population Estimate. Unless otherwise indicated: - we obtained market ranking by radio advertising revenue, radio market advertising revenue and radio market advertising data from BIA's MasterAccess ("BIA") compiled by BIA Research, Inc.; - we obtained total industry listener and revenue levels from the Radio Advertising Bureau ("RAB"); - we derived all audience share data and audience rankings, including ranking by population, except where otherwise stated to the contrary, from surveys of people ages 12 and over ("Adults 12+"), listening Monday through Sunday, 6 a.m. to 12 midnight, and based on the Fall 2000 Arbitron Market Report pertaining to each market, as reported by BIA; and - we obtained revenue share data in each market presented from BIA as adjusted for market information available to and known by the Company. - All dollar amounts are rounded to the nearest thousand. The terms "Broadcast Cash Flow" and "EBITDA" are used in various places in this document. Broadcast Cash Flow consists of: - operating income (loss) before -- depreciation, -- amortization, -- LMA fees, -- non-cash stock compensation expense, -- corporate general and administrative expense, and -- restructuring and other charges. EBITDA, consists of: - operating income (loss) before -- depreciation, 3 4 -- amortization, -- LMA fees, -- non-cash stock compensation expense, and -- restructuring and other charges. EBITDA, as defined by the Company, may not be comparable to similarly titled measures used by other companies. Although Broadcast Cash Flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles ("GAAP"), we believe that they are useful to an investor in evaluating the Company because they are measures widely used in the broadcast industry to evaluate a radio company's operating performance. However, Broadcast Cash Flow and EBITDA should not be considered in isolation or as substitutes for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as measures of liquidity or profitability. COMPANY OVERVIEW We are a radio broadcasting company focused on acquiring, operating and developing radio stations in mid-size radio markets in the U.S. and own and operate 186 stations in 42 U.S. markets. We also provide sales and marketing services under local marketing, management and consulting agreements (pending FCC approval of acquisition) to 41 stations in 16 U.S. markets. We are the second largest radio broadcasting company in the U.S. based on number of stations. We believe we are the tenth largest radio broadcasting company in the U.S. based on 2000 pro forma net revenues. We will own and operate a total of 225 radio stations (164 FM and 61 AM) in 46 U.S. markets upon consummation of our pending acquisitions and dispositions. According to BIA and the Radio Advertising Bureau, we have assembled market-leading groups or clusters of radio stations which rank first or second in terms of revenue share and/or audience share in substantially all of our markets. On a historical basis, for the year ended December 31, 2000, we had net revenues of $225.9 million and Broadcast cash Flow of $34.6 million. Relative to the 100 largest markets in the U.S., we believe that the mid-size markets represent attractive operating environments and generally are characterized by: - a greater use of radio advertising as evidenced by the greater percentage of total media revenues captured by radio than the national average; - rising advertising revenues as the larger national and regional retailers expand into these markets; - small independent operators, many of whom lack the capital to produce high quality locally-originated programming and/or to employ more sophisticated research, marketing, management and sales techniques; and - lower overall susceptibility to economic downturns. We believe that the attractive operating characteristics of mid-size markets, together with the relaxation of radio station ownership limits under the Telecommunications Act of 1996 ("the Telecom Act") and FCC rules, create significant opportunities for growth from the formation of groups of radio stations within these markets. We believe that mid-size radio markets provide an excellent opportunity to acquire attractive properties at favorable purchase prices due to the size and fragmented nature of ownership in these markets and to the greater attention historically given to the larger markets by radio station acquirers. According to BIA, there are approximately 1,656 FM and 1,035 AM stations in the 177 US radio markets ranked MSA 100-283. These 2,691 stations are owned by approximately 990 different operators. In addition, there are nearly 4,700 stations in unranked markets owned by approximately 2,500 operators. To maximize the advertising revenues and Broadcast Cash Flow of our stations, we seek to enhance the quality of radio programs for listeners and the attractiveness of the radio station in a given market. We also increase the amount of locally originated programming. Within each market, our stations are diversified in terms of format, target audience and geographic location, enabling us to attract larger and broader listener 4 5 audiences and thereby a wider range of advertisers. This diversification, coupled with our favorable advertising pricing, also has provided us with the ability to compete successfully for advertising revenue against non-traditional competitors such as print media and television. We believe that we are in a position to generate revenue growth in excess of historical market rates, increase audience and revenue shares within these markets and, by capitalizing on economies of scale and by competing against other media for incremental advertising revenue, increase our Broadcast Cash Flow growth rates and margins to those levels found in large markets. As we have assembled our portfolio of stations over the past four years, many of our markets are still in the development stage with the potential for substantial growth as we implement our operating strategy. OPERATING STRATEGY Our operating strategy has the following principal components: - ASSEMBLE AND DEVELOP LEADING STATION GROUPS. In each market, we acquire leading stations in terms of revenue or audience share as well as under-performing stations which we believe create an opportunity for growth. Each station within a market generally has a different format and an FCC license that provides for full signal coverage in the market area. - DEVELOP EACH STATION AS A UNIQUE ENTERPRISE. While stations within a market share common infrastructure in terms of office and/or studio space, support personnel and certain senior management, each station is developed and marketed as an individual brand with its own identity, programming, programming personnel, inventory of time slots and sales force. We believe that this strategy maximizes the revenues per station and of the group as a whole. - USE RESEARCH TO GUIDE PROGRAMMING. We use audience research and music testing to refine each station's programming content to match the preferences of the station's target demographic audience. We also seek to enrich our listeners' experiences by increasing both the quality and quantity of local programming. We believe this strategy maximizes the number of listeners for each station. - POSITION STATION GROUPS TO COMPETE WITH PRINT AND TELEVISION. While advertising for each station is typically sold independently of other stations, the diverse station formats within each market have enabled us to attract a larger and broader listener audience which in turn has attracted a wider range of advertisers. We believe this diversification, coupled with our favorable advertising pricing, has provided us with the ability to compete successfully against not only traditional radio competitors, but also against non-traditional competitors such as print media and television. - ORGANIZE MARKETS IN ADVERTISER REGIONS. Our markets are located primarily in five regional concentrations: the Southeast, Midwest, Southwest, Northeast and the Far West. By assembling market clusters with a regional concentration, we believe that we will be able to increase revenues by offering regional coverage of key demographic groups that were previously unavailable to national and regional advertisers. - EMPLOY INTERNET-BASED MANAGEMENT INFORMATION SYSTEMS. We have implemented an Internet-based proprietary software application which enables us to monitor daily sales performance by station and by market compared to their respective budgets. It also enables us to identify any under-performing stations, determine the explanation for the under-performance and take corrective action quickly. In addition, our Internet-based system provides all of our stations with a cost-efficient and rapid medium to exchange ideas and views regarding station operations and ways to increase advertising revenues. We also use this system to electronically deliver to our stations ads and program elements which are produced at our central production facility. 5 6 ACQUISITION AND DIVESTITURES HISTORY We completed the acquisitions of 76 radio stations for cash during the year ended December 31, 2000. The aggregate purchase price of $430.3 million for these transactions includes certain acquisition-related costs paid in 2000 and 1999. On March 5, 2000 Cumulus Media Inc. entered into an Asset Purchase Agreement (the "Phase 1 Purchase Agreement") with Capstar Radio Operating Company ("Capstar ROC") and Capstar TX Limited Partnership ("Capstar TX"), entities controlled by Clear Channel Communications Inc. ("Clear Channel") to facilitate the acquisition and disposition of certain radio station assets. Also on March 5, 2000 Cumulus Media Inc. entered into an Asset Exchange Agreement (the "Phase 1 Exchange Agreement") with Capstar ROC and Capstar TX pursuant to which the parties agreed to exchange the Clear Channel Station Assets (defined therein) and the Exchange Party Station Assets (defined therein). The parties intended the transaction contemplated by this Exchange Agreement to be a like-kind exchange in accordance with the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). On June 5, 2000 the parties to the Phase 1 Purchase Agreement and the Phase 1 Exchange Agreement entered into an Amendment (the "First Amendment") in which the Exchange Agreement and the Phase 1 Purchase Agreement were amended to, among other things, 1) modify the radio station assets to be included in the Phase 1 Exchange Agreement; and 2) modify the purchase price under the Phase 1 Purchase Agreement and the cash amount under the Phase 1 Exchange Agreement. On July 17, 2000 the parties to the Phase 1 Purchase Agreement and the Phase 1 Exchange Agreement entered into a Second Amendment (the "Second Amendment") whereby the Phase 1 Exchange Agreement and the Phase 1 Purchase Agreement were amended to, among other things, 1) further modify the radio station assets to be included in the Phase 1 Exchange Agreement; and 2) further modify the purchase price under the Phase 1 Purchase Agreement and the cash amount under the Phase 1 Exchange Agreement. The Phase 1 Purchase Agreement and the Phase 1 Exchange Agreement, as amended, will hereafter be referred to as the "Phase 1 Clear Channel Agreements". The transactions contemplated by the Phase 1 Clear Channel Agreements were consummated on August 25, 2000, whereby the Company transferred 25 stations in 5 markets to Clear Channel in exchange for 8 stations in 3 markets plus $91.5 million of cash proceeds. On September 6, 2000, Cumulus Media Inc. entered into an Asset Purchase Agreement (the "Phase 2 Asset Purchase Agreement") with Clear Channel Broadcasting, Inc. and Clear Channel Broadcasting Licenses, Inc., entities controlled by Clear Channel. On September 30, 2000, Cumulus Media Inc. entered into an amendment to the Phase 2 Asset Purchase Agreement (the "Phase 2 Amendment") with Clear Channel. Among other things, the Phase 2 Amendment i) specified the transfer of the Station Assets were as part of a like-kind exchange under Section 1031 of the Internal Revenue Code, and ii) set the closing date for October 2, 2000. The transactions contemplated by the Phase 2 Asset Purchase Agreement were consummated on October 2, 2000, whereby the Company sold 28 stations in 5 markets for $68.9 million of initial cash proceeds. Upon receipt of regulatory approval for 6 of the stations being sold, the Company will receive an additional $6.0 million of cash proceeds. On October 2, 2000, Cumulus Media Inc. entered into a Tangible Property Purchase Agreement (the "Phase 3 Tangible Property Purchase Agreement") with Capstar ROC. The transactions contemplated by the Phase 3 Tangible Property Purchase Agreement were consummated on October 2, 2000, whereby the Company sold the tangible assets associated with 44 stations in 8 markets to Clear Channel in exchange for cash proceeds of $15.0 million. On October 2, 2000, Cumulus Media Inc. entered into an Asset Exchange Agreement (the "Phase 3 Asset Exchange Agreement") with Capstar ROC and Capstar TX. On January 18, 2001, the Company completed substantially all of the asset exchanges and sales contemplated by the Phase 3 Asset Exchange Agreement with Capstar ROC and Capstar TX. Upon the closing, the Company transferred 44 stations in 8 markets in exchange for 4 stations in 1 market and 6 7 approximately $36.2 million in cash. As of the close date, the Company also received approximately $2.7 million in proceeds previously withheld from the second phase of the Clear Channel transactions. The statement of operations for the year ended December 31, 2000 includes the revenue and broadcast operating expenses, or in the case of local marketing, management or consulting agreements, the respective contractual income, of these radio stations and any related fees associated with the LMA from the effective date of the LMA through the earlier of (i) the date of acquisition of such station by the Company; (ii) December 31, 2000; or (iii) in the case of WJZE-FM, the termination date of the LMA. As of December 31, 2000 the Company was a party to various agreements to acquire stations across 16 markets for an aggregate purchase price of approximately $186.6 million. Between January 1, 2001 and March 16, 2001 the Company closed the acquisitions of 7 of those stations across 2 markets, representing $106.2 million in purchase price. INDUSTRY OVERVIEW The primary source of revenues for radio stations is the sale of advertising time to local, regional and national spot advertisers and national network advertisers. National spot advertisers assist advertisers in placing their advertisements in a specific market. National network advertisers place advertisements on a national network show and such advertisements will air in each market where the network has an affiliate. During the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 72% to 87%. The growth in total radio advertising revenue tends to be fairly stable. With the exception of 1991, when total radio advertising revenue fell by approximately 3.1% compared to the prior year, advertising revenue has generally risen in each of the past 16 years faster than both inflation and the gross national product. According to the Radio Advertising Bureau's Radio Marketing Guide and Fact Book for Advertisers, Fall '99 to Spring '00, each week radio reaches approximately 95% of all Americans over the age of 12. More than 66% of all radio listening is done outside the home and car radio reaches four out of five adults each week. The average listener spends approximately three hours and six minutes per day listening to radio. The highest portion of radio listenership occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. This "morning drive time" period reaches more than 84% of people over 12 years of age, and as a result, radio advertising sold during this period achieves premium advertising rates. Radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, adult contemporary, oldies and news/talk. A station's format and style of presentation enables it to target specific segments of listeners sharing certain demographic features. By capturing a specific share of a market's radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations use data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations. The number of advertisements that can be broadcast without jeopardizing listening levels and the resulting ratings are limited in part by the format of a particular station and the local competitive environment. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. A station's local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station usually will engage a firm that specializes in soliciting radio advertising sales on a national level. National sales representatives obtain advertising principally from advertising agencies located outside the station's market and receive commissions based on the revenue from the advertising they obtain. Our stations also compete for advertising revenue with other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons and outdoor advertising. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or 7 8 introduced, such as the delivery of audio programming by cable television systems, by satellite and by digital audio broadcasting. The FCC has authorized two companies to provide satellite digital audio service. Such service, when implemented, is expected to deliver by satellite to nationwide and regional audiences, multi-channel, multi-format, digital radio services with sound quality equivalent to compact discs. The FCC has also sought public comment on the introduction of terrestrial digital audio broadcasting (which is digital audio broadcasting delivered using earth based equipment rather than satellites). It is not known at this time whether any such digital technology may be used in the future by existing radio broadcast stations, either on existing or alternate broadcasting frequencies. In addition, as discussed below, the FCC recently authorized a new low power FM service which may compete with our stations for listeners and revenue. The delivery of radio signals and information through the presently unregulated Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. ADVERTISING SALES Virtually all of our revenue is generated from the sale of local, regional and national advertising for broadcast on our radio stations. Approximately 89%, 89% and 88% of our net broadcasting revenue was generated from the sale of local and regional advertising in 2000, 1999 and 1998, respectively. Additional broadcasting revenue is generated from the sale of national advertising. The major categories of our advertisers include: - - Automotive - Telecommunications - Computers & Software - - Retail - Fast Food - Entertainment - - Healthcare - Beverage - Services
Each station's local sales staff solicits advertising either directly from the local advertiser or indirectly through an advertising agency. We employ a tiered commission structure to focus our individual sales staffs on new business development. Consistent with our operating strategy of dedicated sales forces for each of our stations, we have also increased the number of salespeople per station. We believe that we can outperform the traditional growth rates of our markets by (1) expanding our base of advertisers, (2) training newly hired sales people and (3) providing a higher level of service to our existing base. This requires larger sales staffs than most of the stations employ at the time they are acquired by Cumulus. We support our strategy of building local direct accounts by employing personnel in each of our markets to produce custom commercials that respond to the needs of our advertisers. In addition, in-house production provides advertisers greater flexibility in changing their commercial messages with minimal lead-time. Our national sales are made by Interep National Radio Sales, Inc., a firm specializing in radio advertising sales on the national level, in exchange for a commission that is based on our net revenue from the advertising obtained. Regional sales, which we define as sales in regions surrounding our markets to buyers that advertise in our markets, are generally made by our local sales staff and market managers. Whereas we seek to grow our local sales through larger and more customer-focused sales staffs, we seek to grow our national and regional sales by offering to key national and regional advertisers groups of stations within specific markets and regions that make our stations more attractive. Many of these large accounts have previously been reluctant to advertise in these markets because of the logistics involved in buying advertising from individual stations. Certain of our stations had no national representation before being acquired by us. The number of advertisements that can be broadcast without jeopardizing listening levels and the resulting ratings are limited in part by the format of a particular station. We estimate the optimal number of advertisements available for sale depending on the programming format of a particular station. Each of our stations has a general target level of on-air inventory that it makes available for advertising. This target level of inventory for sale may be different at different times of the day but tends to remain stable over time. Our 8 9 stations strive to maximize revenue by managing their on-air inventory of advertising time and adjusting prices up or down based on supply and demand. We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across our cluster of stations, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group. Our selling and pricing activity is based on demand for our radio stations' on-air inventory and, in general, we respond to this demand by varying prices rather than by varying our target inventory level for a particular station. Most changes in revenue are explained by demand-driven pricing changes rather than by changes in the available inventory. Advertising rates charged by radio stations are based primarily on: - a station's share of audiences generally, and in the demographic groups targeted by advertisers (as measured by ratings surveys); - the supply of and demand for radio advertising time generally and for time targeted at particular demographic groups; and - certain additional qualitative factors. Rates are generally highest during morning and afternoon commuting hours. A station's listenership is reflected in ratings surveys that estimate the number of listeners tuned to the station and the time they spend listening. Each station's ratings are used by its advertisers and advertising representatives to consider advertising with the station and are used by Cumulus to chart audience growth, set advertising rates and adjust programming. The radio broadcast industry's principal ratings service is Arbitron, which publishes periodic ratings surveys for significant domestic radio markets. These surveys are our primary source of ratings data. COMPETITION The radio broadcasting industry is highly competitive. The success of each of our stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. Our audience ratings and advertising revenue are subject to change, and any adverse change in a particular market affecting advertising expenditures or an adverse change in the relative market positions of the stations located in a particular market could have a material adverse effect on the revenue of our radio stations located in that market. There can be no assurance that any one or all of our stations will be able to maintain or increase current audience ratings or advertising revenue market share. Our stations, including those to be acquired upon completion of the pending acquisitions, compete for listeners and advertising revenues directly with other radio stations within their respective markets, as well as with other advertising media as discussed below. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base consisting of specific demographic groups in each of our markets, we are able to attract advertisers seeking to reach those listeners. Companies that operate radio stations must be alert to the possibility of another station changing its format to compete directly for listeners and advertisers. Another station's decision to convert to a format similar to that of one of our radio stations in the same geographic area or to launch an aggressive promotional campaign may result in lower ratings and advertising revenue, increased promotion and other expenses and, consequently, lower broadcast cash flow for Cumulus. Factors that are material to a radio station's competitive position include management experience, the station's local audience rank in its market, transmitter power and location, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations and other advertising media in the market area. We attempt to improve our competitive position in each market by extensively researching and improving our stations' programming, by implementing advertising campaigns aimed at the demographic groups for which our stations program and by managing our sales efforts to attract a larger share of advertising dollars for each station individually. However, we compete with some organizations that have substantially greater financial or other resources than we do. Recent changes in federal law and the FCC's rules and policies permit increased ownership and operation of multiple local radio stations. Management believes that radio stations that elect to take advantage of groups 9 10 of commonly owned stations or joint arrangements such as LMAs may in certain circumstances have lower operating costs and may be able to offer advertisers more attractive rates and services. Although we currently operate multiple stations in each of our markets and intend to pursue the creation of additional multiple station groups, our competitors in certain markets include operators of multiple stations or operators who already have entered into LMAs. We may also compete with other broadcast groups for the purchase of additional stations. Some of these groups are owned or operated by companies that have substantially greater financial or other resources than we do. Although the radio broadcasting industry is highly competitive, and competition is enhanced to some extent by changes in existing radio station formats and upgrades of power, among other actions, certain regulatory limitations on entry exist. The operation of a radio broadcast station requires a license from the FCC, and the number of radio stations that an entity can operate in a given market is limited by the availability of FM and AM radio frequencies allotted by the FCC to communities in that market, as well as by the multiple ownership rules regulating the number of stations that may be owned or programmed by a single entity. The multiple ownership provisions of the FCC's rules have changed significantly as a result of the Telecom Act. For a discussion of FCC regulation and the provisions of the Telecom Act, see "-- Federal Regulation of Radio Broadcasting." Our stations also compete for advertising revenue with other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons and outdoor advertising. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by digital audio broadcasting. Digital audio broadcasting may deliver by satellite to nationwide and regional audiences, multi-channel, multi-format, digital radio services with sound quality equivalent to compact discs. The delivery of broadcast signals and information through the presently unregulated Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. The FCC has recently authorized spectrum for the use of a new technology, satellite digital audio radio services, to deliver audio programming. The FCC has also authorized two companies to provide digital audio radio service. Digital audio radio services may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats to local and national audiences. It is not known at this time whether this digital technology also may be used in the future by existing radio broadcast stations either on existing or alternate broadcasting frequencies. The FCC also recently approved a new low power FM radio service. Under this program, licenses to operate stations in this service would be available only to persons or entities that do not currently own FM radio stations. We cannot predict what effect, if any, the implementation of these services will have on our operations. Low power FM radio stations may, however, cause interference to our stations and compete with our stations for listeners and advertising revenues. We cannot predict what other matters might be considered in the future by the FCC or the Congress, nor can we assess in advance what impact, if any, the implementation of any of these proposals or changes might have on our business. EMPLOYEES At December 31, 2000, we employed approximately 2,700 people. None of our employees are covered by collective bargaining agreements, and we consider our relations with our employees to be satisfactory. We employ several on-air personalities with large loyal audiences in their respective markets. On occasion, we enter into employment agreements with these personalities to protect our interests in those 10 11 relationships that we believe to be valuable. The loss of any one of these personalities could result in a short-term loss of audience share, but we do not believe that any such loss would have a material adverse effect on our financial condition or results of operations, taken as a whole. FEDERAL REGULATION OF RADIO BROADCASTING Introduction. The ownership, operation and sale of broadcast stations, including those licensed to us, are subject to the jurisdiction of the FCC, which acts under authority derived from the Communications Act of 1934. The Telecom Act amended the Communications Act to make changes in several broadcast laws and to direct the FCC to change certain of its broadcast rules. Among other things, the FCC grants permits and licenses to construct and operate radio stations; assigns frequency bands for broadcasting; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations and the operating power and other technical parameters of stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; regulates the content of some forms of radio broadcasting programming; and has the power to impose penalties for violations of its rules under the Communications Act. The following is a brief summary of certain provisions of the Communications Act, the Telecom Act and specific FCC rules and policies. This description does not purport to be comprehensive, and reference should be made to the Communications Act, the Telecom Act, the FCC's rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of radio broadcasting stations. Failure to observe the provisions of the Communications Act and the FCC's rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of "short-term" (less than the maximum term) license renewal or, for particularly egregious violations, the denial of a license renewal application, the revocation of a license or the denial of FCC consent to acquire additional broadcast properties. License Grant and Renewal. Radio broadcast licenses are granted and renewed for maximum terms of eight years. Licenses may be renewed through an application to the FCC. Petitions to deny license renewal applications can be filed by interested parties, including members of the public. We are not currently aware of any facts that would prevent the timely renewal of our licenses to operate our radio stations, although there can be no assurance that our licenses will be renewed. The area served by AM stations is determined by a combination of frequency, transmitter power and antenna orientation. To determine the effective service area of an AM station, its power, its operating frequency, its antenna patterns and its day/night operating modes are required. The area served by FM stations is determined by a combination of transmitter power and antenna height, with stations divided into classes according to their anticipated service area. Class C FM stations operate at 100 kilowatts of power with up to 1,968 feet of antenna elevation above average terrain. They are the most powerful FM stations, providing service to a large area, typically a substantial portion of a state. Class B FM stations operate at up to 50 kilowatts of power with up to 492 feet of antenna elevation. These stations typically serve large metropolitan areas as well as their associated suburbs. Class A FM stations operate at 6 kilowatts with up to 328 feet of antenna elevation, and serve smaller cities and towns or suburbs of larger cities. The minimum and maximum facilities requirements for a FM station are determined by its class. FM class designations depend upon the geographic zone in which the transmitter of the FM station is located. In general, commercial FM stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1, C-0, and C. 11 12 The following table sets forth the market, call letters, FCC license classification, antenna elevation above average terrain (for FM stations only), power and frequency of each of the stations we own or operate, assuming the consummation of all pending acquisitions, and the date on which each station's FCC license will expire.
HEIGHT ABOVE POWER AVERAGE (IN KILOWATTS) EXPIRATION FCC TERRAIN --------------- MARKET STATIONS CITY OF LICENSE FREQUENCY DATE OF LICENSE CLASS (IN FEET) DAY NIGHT ------ -------------- --------------- --------- --------------- ----- --------- --- ----- MIDWEST REGION Appleton Oshkosh, WI... WWWX FM Oshkosh, WI 96.9 December 1, 2004 A 328 6.0 6.0 WVBO FM Winneconne, WI 103.9 December 1, 2004 C3 318 25.0 25.0 WNAM AM Neenah Menasha, WI 1280 December 1, 2004 B N.A. 20.0 5.0 WOSH AM Oshkosh, WI 1490 December 1, 2004 C N.A. 1.0 1.0 Dubuque, IA............ KLYV FM Dubuque, IA 105.3 February 1, 2005 C2 331 50.0 50.0 KXGE FM Dubuque, IA 102.3 February 1, 2005 A 410 1.7 1.7 WDBQ FM Galena, IL 107.5 February 1, 2005 A 328 3.0 3.0 WDBQ AM Dubuque, IA 1490 February 1, 2005 C N.A. 1.0 1.0 WJOD FM Asbury, IA 103.3 February 1, 2005 C3 643 6.6 6.6 Bismarck, ND........... KBYZ FM Bismarck, ND 96.5 April 1, 2005 C 1001 100.0 100.0 KACL FM Bismarck, ND 98.7 April 1, 2005 C 1093 100.0 100.0 KKCT FM Bismarck, ND 97.5 April 1, 2005 C1 830 100.0 100.0 KLXX AM Mandan, ND 1270 April 1, 2005 B N.A. 1.0 0.3 Canton, OH............. WRQK FM Canton, OH 106.9 October 1, 2003 B 341 27.5 27.5 WQXK FM Salem, OH 105.1 October 1, 2003 B 430 88.0 88.0 WSOM AM Salem, OH 600 October 1, 2003 D N.A 1.0 0.0 Cedar Rapids, IA....... KDAT FM Cedar Rapids, IA 104.5 February 1, 2005 C1 551 100.0 100.0 KHAK FM Cedar Rapids, IA 98.1 February 1, 2005 C1 459 100.0 100.0 KRNA FM Iowa City, IA 94.1 February 1, 2005 C1 981 100.0 100.0 Faribault-Owatonna- Waseca, MN............. KRFO AM Owatonna, MN 1390 April 1, 2005 B N.A. 0.5 0.1 KRFO FM Owatonna, MN 104.9 April 1, 2005 A 174 4.7 4.7 KOWO AM Waseca, MN 1170 April 1, 2005 B N.A. 1.0 0.0 KRUE FM Waseca, MN 92.1 April 1, 2005 C3 285 25.0 25.0 KDHL AM Faribault, MN 920 April 1, 2005 B N.A. 5.0 5.0 KQCL FM Faribault, MN 95.9 April 1, 2005 A 328 3.0 3.0 KQPR FM Albert Lea, MN 96.1 April 1, 2005 A 328 6.0 6.0 Flint, MI.............. WDZZ FM Flint, MI 92.7 October 1, 2004 A 256 3.0 3.0 WRSR FM Owosso, MI 103.9 October 1, 2004 A 482 2.9 2.9 WWCK FM Flint, MI 105.5 October 1, 2004 B1 328 25.0 25.0 WFDF AM Flint, MI 910 October 1, 2004 B N.A. 5.0 1.0 WWCK AM Flint, MI 1570 October 1, 2004 D N.A. 1.0 0.1 Green Bay, WI.......... WOGB FM Kaukauna, WI 103.1 December 1, 2004 C3 879 25.0 25.0 WJLW FM Allouez, WI 106.7 December 1, 2004 C3 509 25.0 25.0 WXWX FM Brillion, WI 107.5 December 1, 2004 A 328 6.0 6.0 WQLH FM Green Bay, WI 98.5 December 1, 2004 C1 499 100.0 100.0 WDUZ AM Green Bay, WI 1400 December 1, 2004 C N.A. 1.0 1.0 Harrisburg, PA......... WNNK FM Harrisburg, PA 104.1 August 1, 2006 B 725 22.5 22.5 WTPA FM Mechanicsburg, PA 93.5 August 1, 2006 A 719 1.3 1.3 WNCE FM Palmyra, PA 92.1 August 1, 2006 A 299 3.3 3.3 WTCY AM Harrisburg, PA 1400 August 1, 2006 C N.A. 1.0 1.0 Kalamazoo, MI.......... WKFR FM Battle Creek, MI 103.3 October 1, 2004 B 482 50.0 50.0 WRKR FM Portage, MI 107.7 October 1, 2004 B 489 50.0 50.0 WKMI AM Kalamazoo, MI 1360 October 1, 2004 B N.A. 5.0 1.0 Monroe, MI............. WTWR FM Monroe, MI 98.3 October 1, 2004 A 466 1.4 1.4 Quad Cities, IA-IL..... WXLP FM Moline, IL 96.9 December 1, 2004 B 499 50.0 50.0 KORB FM Bettendorf, IA 93.5 February 1, 2005 A 896 6.0 6.0 KBEA FM Muscatine, IA 99.7 February 1, 2005 C1 318 100.0 100.0 KBOB FM DeWitt, IA 104.9 February 1, 2005 C3 469 12.5 12.5 KJOC AM Davenport, IA 1170 February 1, 2005 B N.A. 1.0 1.0
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HEIGHT ABOVE POWER AVERAGE (IN KILOWATTS) EXPIRATION FCC TERRAIN --------------- MARKET STATIONS CITY OF LICENSE FREQUENCY DATE OF LICENSE CLASS (IN FEET) DAY NIGHT ------ -------------- --------------- --------- --------------- ----- --------- --- ----- Rockford, IL........... WROK AM Rockford, IL 1440 December 1, 2004 B N.A. 5.0 0.3 WZOK FM Rockford, IL 97.5 December 1, 2004 B 430 50.0 50.0 WXXQ FM Freeport, IL 98.5 December 1, 2004 B1 492 11.0 11.0 WKMQ FM Lores Park, IL 96.7 December 1, 2004 A 161 5.0 5.0 Saginaw, MI............ WTLZ FM Saginaw, MI 107.1 October 1, 2004 A 361 4.9 4.9 Toledo, OH............. WKKO FM Toledo, OH 99.9 October 1, 2003 B 499 50.0 50.0 WRQN FM Bowling Green, OH 93.5 October 1, 2003 A 397 4.1 4.1 WTOD AM Toledo, OH 1560 October 1, 2003 B N.A. 5.0 0.0 WWWM FM Sylvania, OH 105.5 October 1, 2003 A 390 4.3 4.3 WLQR AM Toledo, OH 1470 October 1, 2003 B N.A. 1.0 1.0 WXKR FM Port Clinton, OH 94.5 October 1, 2003 B 630 30.0 30.0 WRWK FM Delta, OH 106.5 October 1, 2003 A 328 3.0 3.0 Topeka, KS............. KDVV FM Topeka, KS 100.3 August 1, 2005 C 984 100.0 100.0 KMAJ FM Topeka, KS 107.7 August 1, 2005 C 988 100.0 100.0 KMAJ AM Topeka, KS 1440 August 1, 2005 B N.A. 5.0 1.0 KTOP AM Topeka, KS 1490 August 1, 2005 C N.A. 1.0 1.0 KQTP FM St. Marys, KS 102.9 August 1, 2005 C2 318 50.0 50.0 KWIC FM Topeka, KS 99.3 August 1, 2005 A 292 6.0 6.0 Waterloo-Cedar Falls, IA..................... KKCV FM Cedar Falls, IA 98.5 February 1, 2005 C3 423 15.1 15.1 KOEL FM Oelwein, IA 92.3 February 1, 2005 C 991 95.0 95.0 KOEL AM Oelwein, IA 950 February 1, 2005 B N.A. 5.0 0.5 KCRR FM Grundy Center, IA 97.7 February 1, 2005 C3 407 16.0 16.0 Youngstown, OH......... WBBW AM Youngstown, OH 1240 October 1, 2003 C N.A. 1.0 1.0 WPIC AM Sharon, PA 790 August 1, 2006 D N.A. 1.0 0.0 WYFM FM Sharon, PA 102.9 August 1, 2006 B 604 33.0 33.0 WHOT FM Youngstown, PA 101.1 October 1, 2003 B 705 24.5 24.5 WLLF FM Mercer, PA 96.7 August 1, 2006 A 486 1.4 1.4 WWIZ FM Mercer, PA 103.9 August 1, 2006 A 299 3.0 3.0 SOUTHEAST REGION Albany, GA............. WNUQ FM Albany, GA 101.7 April 1, 2004 A 299 3.0 3.0 WEGC FM Sasser, GA 107.7 April 1, 2004 C3 328 25.0 25.0 WALG AM Albany, GA 1590 April 1, 2004 B N.A. 5.0 1.0 WJAD FM Leesburg, GA 103.5 April 1, 2004 C3 463 12.5 12.5 WKAK FM Albany, GA 104.5 April 1, 2004 C1 981 98.0 98.0 WGPC AM Albany, GA 1450 April 1, 2004 C N.A. 1.0 1.0 WQVE FM Camilla, GA 105.5 April 1, 2004 A 276 6.0 6.0 WWSG FM Sylvester, GA 102.1 April 1, 2004 A 328 6.0 6.0 Columbus-Starkville, MS..................... WSSO AM Starkville, MS 1230 June 1, 2004 C N.A. 1.0 1.0 WMXU FM Starkville, MS 106.1 June 1, 2004 C2 502 40.0 40.0 WSMS FM Artesia, MS 99.9 June 1, 2004 C2 312 50.0 50.0 WKOR FM Columbus, MS 94.9 June 1, 2004 C2 492 50.0 50.0 WKOR AM Starkville, MS 980 June 1, 2004 B N.A. 1.0 0.0 WJWF AM Columbus, MS 1400 June 1, 2004 C N.A. 1.0 1.0 WMBC FM Columbus, MS 103.1 June 1, 2004 C2 755 22.0 22.0 Fayetteville, NC....... WRCQ FM Dunn, NC 103.5 December 1, 2003 C2 502 47.5 47.5 WFNC FM Lumberton, NC 102.3 December 1, 2003 A 269 3.0 3.0 WFNC AM Fayetteville, NC 640 December 1, 2003 B N.A. 10.0 1.0 WQSM FM Fayetteville, NC 98.1 December 1, 2003 C1 830 100.0 100.0 WKQB FM Southern Pines, NC 106.9 December 1, 2003 C2 482 50.0 50.0 Florence, SC........... WYNN FM Florence, SC 106.3 December 1, 2003 A 325 6.0 6.0 WYNN AM Florence, SC 540 December 1, 2003 B N.A. 0.3 0.2 WHLZ FM Manning, SC 92.5 December 1, 2003 C 1171 98.0 98.0 WYMB AM Manning, SC 920 December 1, 2003 B N.A. 2.3 1.0 WCMG FM Latta, SC 94.3 December 1, 2003 C3 502 10.5 10.5 WHSC AM Hartsville, SC 1450 December 1, 2003 C N.A. 1.0 1.0 WBZF FM Hartsville, SC 98.5 December 1, 2003 A 328 3.0 3.0 WFSF FM Marion, SC 100.5 December 1, 2003 C3 354 21.5 21.5 WMXT FM Pamplico, SC 102.1 December 1, 2003 C2 479 50.0 50.0 WWFN FM Lake City, SC 100.1 December 1, 2003 A 433 3.3 3.3
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HEIGHT ABOVE POWER AVERAGE (IN KILOWATTS) EXPIRATION FCC TERRAIN --------------- MARKET STATIONS CITY OF LICENSE FREQUENCY DATE OF LICENSE CLASS (IN FEET) DAY NIGHT ------ -------------- --------------- --------- --------------- ----- --------- --- ----- Lexington, KY.......... WVLK AM Lexington, KY 590 August 1, 2004 B N.A. 5.0 1.6 WVLK FM Lexington, KY 92.9 August 1, 2004 C1 850 100.0 100.0 WLTO FM Nicholasville, KY 102.5 August 1, 2004 A 400 2.0 2.0 WLRO FM Richmond, KY 101.5 August 1, 2004 C3 541 10.0 10.0 WXZZ FM Georgetown, KY 103.3 August 1, 2004 A 794 1.0 1.0 Melbourne-Titus-Cocoa, FL..................... WHKR FM Rockledge, FL 102.7 February 1, 2004 C2 492 50.0 50.0 WAOA FM Melbourne, FL 107.1 February 1, 2004 C1 486 100.0 100.0 WAOA AM Melbourne, FL 1560 February 1, 2004 D N.A. 5.0 0.0 Mobile, AL............. WYOK FM Atmore, AL 104.1 April 1, 2004 C 1555 100.0 100.0 WGOK AM Mobile, AL 900 April 1, 2004 B N.A. 1.0 0.4 WBLX FM Mobile, AL 92.9 April 1, 2004 C 1555 98.0 98.0 WDLT FM Chickasaw, AL 98.3 April 1, 2004 C2 548 40.0 40.0 WDLT AM Fairhope, AL 660 April 1, 2004 B N.A. 10.0 0.0 Montgomery, AL......... WMSP AM Montgomery, AL 740 April 1, 2004 B N.A. 10.0 0.0 WNZZ AM Montgomery, AL 950 April 1, 2004 B N.A. 1.0 0.4 WMXS FM Montgomery, AL 103.3 April 1, 2004 C 1096 100.0 100.0 WLWI FM Montgomery, AL 92.3 April 1, 2004 C 1096 100.0 100.0 WHHY FM Montgomery, AL 101.9 April 1, 2004 C 1096 100.0 100.0 WLWI AM Montgomery, AL 1440 April 1, 2004 B N.A. 5.0 1.0 WXFX FM Prattville, AL 95.1 April 1, 2004 C2 476 50.0 50.0 Myrtle Beach, SC....... WSYN FM Georgetown, SC 106.5 December 1, 2003 C2 492 50.0 50.0 Pawley's Island, WDAI FM SC 98.5 December 1, 2003 A 328 6.0 6.0 WIQB FM Conway, SC 93.9 December 1, 2003 A 420 3.7 3.7 WXJY FM Georgetown, SC 93.7 December 1, 2003 A 328 6.0 6.0 WJXY AM Conway, SC 1050 December 1, 2003 B N.A. 5.0 0.5 WSEA FM Atlantic Beach, SC 100.3 December 1, 2003 A 476 2.6 2.6 WYAK FM Surfside Beach, SC 103.1 December 1, 2003 C3 528 8.0 8.0 Pensacola, FL.......... WJLQ FM Pensacola, FL 100.7 February 1, 2004 C 1555 100.0 100.0 WCOA AM Pensacola, FL 1370 February 1, 2004 B N.A. 5.0 5.0 WRRX FM Gulf Breeze, FL 106.1 February 1, 2004 A 328 3.0 3.0 Savannah, GA........... WJCL FM Savannah, GA 96.5 April 1, 2004 C 1161 100.0 100.0 WIXV FM Savannah, GA 95.5 April 1, 2004 C1 856 100.0 100.0 WSIS FM Springfield, GA 103.9 April 1, 2004 A 328 6.0 6.0 WBMQ AM Savannah, GA 630 April 1, 2004 B N.A. 5.0 5.0 WEAS FM Savannah, GA 93.1 April 1, 2004 C1 981 97.0 97.0 WJLG AM Savannah, GA 900 April 1, 2004 B N.A. 4.4 0.2 WZAT FM Savannah, GA 102.1 April 1, 2004 C 1306 100.0 100.0 Tallahassee, FL........ WHBX FM Tallahassee, FL 96.1 February 1, 2004 C2 479 37.0 37.0 WBZE FM Tallahassee, FL 98.9 February 1, 2004 C1 604 100.0 100.0 WHBT AM Tallahassee, FL 1410 February 1, 2004 B N.A. 5.0 0.0 WWLD FM Tallahassee, FL 106.1 February 1, 2004 A 328 6.0 6.0 WGLF FM Tallahassee, FL 104.1 February 1, 2004 C 1394 90.0 90.0 Wilmington, NC......... WWQQ FM Wilmington, NC 101.3 December 1, 2003 C2 545 40.0 40.0 WGNI FM Wilmington, NC 102.7 December 1, 2003 C1 981 100.0 100.0 WMNX FM Wilmington, NC 97.3 December 1, 2003 C1 883 100.0 100.0 WKXS FM Leland, NC 94.1 December 1, 2003 A 148 5.0 5.0 WAAV AM Leland, NC 980 December 1, 2003 B N.A. 5.0 5.0 SOUTHWEST REGION Abilene, TX............ KCDD FM Hamlin, TX 103.7 August 1, 2005 C1 745 100.0 100.0 KBCY FM Tye, TX 99.7 August 1, 2005 C 984 98.0 98.0 KFQX FM Anson, TX 98.1 August 1, 2005 C2 492 50.0 50.0 KHXS FM Merkel, TX 102.7 August 1, 2005 C1 1148 66.0 66.0 Amarillo, TX........... KZRK FM Canyon, TX 107.9 August 1, 2005 C1 476 100.0 100.0 KZRK AM Canyon, TX 1550 August 1, 2005 B N.A. 1.0 0.2 KARX FM Claude, TX 95.7 August 1, 2005 C1 390 100.0 100.0 KPUR AM Amarillo, TX 1440 August 1, 2005 B N.A. 5.0 1.0 KPUR FM Canyon, TX 107.1 August 1, 2005 A 315 6.0 6.0 KQIZ FM Amarillo, TX 93.1 August 1, 2005 C1 699 100.0 100.0
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HEIGHT ABOVE POWER AVERAGE (IN KILOWATTS) EXPIRATION FCC TERRAIN --------------- MARKET STATIONS CITY OF LICENSE FREQUENCY DATE OF LICENSE CLASS (IN FEET) DAY NIGHT ------ -------------- --------------- --------- --------------- ----- --------- --- ----- Beaumont-Port Arthur, TX..................... KAYD FM Beaumont, TX 97.5 August 1, 2005 C 1200 100.0 100.0 KQXY FM Beaumont, TX 94.1 August 1, 2005 C 1099 100.0 100.0 KQHN AM Nederland, TX 1510 August 1, 2005 B N.A. 5.0 0.0 KIKR AM Beaumont, TX 1450 August 1, 2005 C N.A. 1.0 1.0 KTCX FM Beaumont, TX 102.5 August 1, 2005 C2 492 50.0 50.0 Fayetteville, AR....... KFAY FM Bentonville, AR 98.3 June 1, 2004 C1 617 100.0 100.0 KFAY AM Farmington, AR 1030 June 1, 2004 B N.A. 10.0 1.0 KKEG FM Fayetteville, AR 92.1 June 1, 2004 C3 548 7.6 7.6 KAMO FM Rogers, AR 94.3 June 1, 2004 C2 692 25.1 25.1 KMCK FM Siloam Springs, AR 105.7 June 1, 2004 C1 476 100.0 100.0 KZRA AM Springdale, AR 1590 June 1, 2004 B N.A. 2.5 0.1 KDAB FM Prairie Grove, AR 94.9 June 1, 2004 C2 761 21.0 21.0 Fort Smith, AR......... KLSZ FM Van Buren, AR 102.7 June 1, 2004 C3 476 12.0 12.0 KOMS FM Poteau, OK 107.3 June 1, 2005 C 1811 100.0 100.0 KBBQ FM Fort Smith, AR 100.7 June 1, 2005 C2 459 50.0 50.0 KAYR AM Van Buren, AR 1060 June 1, 2005 D N.A. 0.5 0.0 Grand Junction, CO..... KBKL FM Grand Junction, CO 107.9 April 1, 2005 C 1460 100.0 100.0 KEKB FM Fruita, CO 99.9 April 1, 2005 C 1542 79.0 79.0 KMXY FM Grand Junction, CO 104.3 April 1, 2005 C 1460 100.0 100.0 KKNN FM Delta, CO 95.1 April 1, 2005 C 1424 100.0 100.0 KEXO AM Grand Junction, CO 1230 April 1, 2005 C N.A. 1.0 1.0 Killeen-Temple, TX..... KLTD FM Temple, TX 101.7 August 1, 2005 C3 410 16.6 16.6 KOOC FM Belton, TX 106.3 August 1, 2005 C3 489 11.5 11.5 KSSM FM Copperas Cove, TX 103.1 August 1, 2005 C3 558 8.6 8.6 KUSJ FM Harker Heights, TX 105.5 August 1, 2005 C2 577 36.0 36.0 KTEM AM Temple, TX 1400 August 1, 2005 C N.A. 1.0 1.0 Lake Charles, LA....... KKGB FM Sulphur, LA 101.3 June 1, 2004 C3 289 25.0 25.0 KBIU FM Lake Charles, LA 103.7 June 1, 2004 C1 469 100.0 100.0 KYKZ FM Lake Charles, LA 96.1 June 1, 2004 C 1204 97.0 97.0 KXZZ AM Lake Charles, LA 1580 June 1, 2004 B N.A. 1.0 1.0 Odessa-Midland, TX..... KBAT FM Midland, TX 93.3 August 1, 2005 C1 440 100.0 100.0 KODM FM Odessa, TX 97.9 August 1, 2005 C1 1000 100.0 100.0 KNFM FM Midland, TX 92.3 August 1, 2005 C 984 100.0 100.0 KGEE FM Monahans, TX 99.9 August 1, 2005 C1 574 98.0 98.0 KMND AM Midland, TX 1510 August 1, 2005 B N.A. 2.4 0.0 KRIL AM Odessa, TX 1410 August 1, 2005 B N.A. 1.0 1.0 Shreveport, LA......... KMJJ FM Shreveport, LA 99.7 June 1, 2004 C2 463 50.0 50.0 KRMD FM Shreveport, LA 101.1 June 1, 2004 C 1119 98.0 98.0 KRMD AM Shreveport, LA 1340 June 1, 2004 C N.A. 1.0 1.0 KBED FM Shreveport, LA 102.9 June 1, 2004 C2 525 44.0 44.0 Wichita Falls, TX...... KLUR FM Wichita Falls, TX 99.9 August 1, 2005 C1 830 100.0 100.0 KQXC FM Wichita Falls, TX 102.5 August 1, 2005 A 312 4.5 4.5 KYYI FM Burkburnett, TX 104.7 August 1, 2005 C 1017 100.0 100.0 KOLI FM Electra, TX 94.9 August 1, 2005 C2 492 50.0 50.0 NORTHEAST REGION Bangor, ME............. WQCB FM Brewer, ME 106.5 April 1, 2006 C 1079 98.0 98.0 WBZN FM Old Town, ME 107.3 April 1, 2006 C2 436 50.0 50.0 WWMJ FM Ellsworth, ME 95.7 April 1, 2006 B 1030 11.5 11.5 WEZQ FM Bangor, ME 92.9 April 1, 2006 B 787 20.0 20.0 WDEA AM Ellsworth, ME 1370 April 1, 2006 B 5.0 5.0 5.0 WEST REGION Eugene-Springfield, OR..................... KNRQ FM Creswell, OR 95.3 February 1, 2006 C3 1207 0.7 0.7 KNRQ AM Eugene, OR 1320 February 1, 2006 D N.A. 1.0 0.1 KZEL FM Eugene, OR 96.1 February 1, 2006 C 1093 100.0 100.0 KUGN AM Eugene, OR 590 February 1, 2006 B N.A. 5.0 5.0 KEHK FM Brownsville, OR 102.3 February 1, 2006 C1 919 100.0 100.0 KKTT FM Eugene, OR 97.9 February 1, 2006 C 1011 100.0 100.0
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HEIGHT ABOVE POWER AVERAGE (IN KILOWATTS) EXPIRATION FCC TERRAIN --------------- MARKET STATIONS CITY OF LICENSE FREQUENCY DATE OF LICENSE CLASS (IN FEET) DAY NIGHT ------ -------------- --------------- --------- --------------- ----- --------- --- ----- Oxnard-Ventura, CA..... KVEN AM Ventura, CA 1450 December 1, 2005 C N.A. 1.0 1.0 KHAY FM Ventura, CA 100.7 December 1, 2005 B 1211 39.0 39.0 KBBY FM Ventura, CA 95.1 December 1, 2005 B 876 12.3 12.3 Santa Barbara, CA...... KMGQ FM Santa Barbara, CA 97.5 December 1, 2005 B 2920 16.0 16.0 KKSB FM Goleta, CA 106.3 December 1, 2005 A 827 0.2 0.2 KRUZ FM Santa Barbara, CA 103.3 December 1, 2005 B 2979 105.0 105.0
We also own and operate five radio stations in various locations throughout the English-speaking Eastern Caribbean, including Trinidad, St. Kitts-Nevis, St. Lucia, Montserrat and Antigua-Barbuda, and we have been granted licenses for FM stations covering Barbados and Tortola, British Virgin Islands. These Eastern Caribbean stations are not regulated by the FCC. Regulatory Approvals. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast license without the prior approval of the FCC. In determining whether to grant an application for assignment or transfer of control of a broadcast license, the Communications Act requires the FCC to find that the assignment or transfer would serve the public interest. The FCC considers a number of factors pertaining to the proposed licensee, including compliance with various rules limiting common ownership of media properties, financial qualifications of the licensee, the "character" of the licensee and those persons holding "attributable" interests in the licensee, and compliance with the Communications Act's limitation on non-U.S. ownership, as well as compliance with other FCC rules and policies, including programming and filing requirements. The FCC also reviews the effect of proposed assignments and transfers of broadcast licenses on economic competition and diversity as discussed below. Petitions to deny have been filed, and are currently pending against certain of the Company's acquisitions in four markets, alleging that those acquisitions would result in excessive market concentration or other violations of the Communications Act or FCC rules and polices. See "-- Antitrust and Market Concentration Considerations." Based on these petitions, the FCC could take action to seek the termination of a local marketing agreement or halt the consummation of an acquisition of the Company. The Company has responded to each such petition. The Company believes no risk of a material adverse impact on the operations of the Company taken as a whole exists related to actions which may be taken by the Commission on those petitions. Ownership Matters. Under the Communications Act, we are restricted to having no more than one-fourth of our stock owned or voted by non-U.S. persons, foreign governments or non-U.S. corporations. We are required to take appropriate steps to monitor the citizenship of our shareholders, such as through representative samplings on a periodic basis, to provide a reasonable basis for certifying compliance with the foreign ownership restrictions of the Communications Act. The Communications Act and FCC rules also generally restrict the common ownership, operation or control of radio broadcast stations serving the same local market, of radio broadcast stations and television broadcast stations serving the same local market, and of a radio broadcast station and a daily newspaper serving the same local market. The Telecom Act and the FCC's broadcast multiple ownership rules also restrict the number of radio stations one person or entity may own, operate or control on a local level. None of these multiple and cross ownership rules requires any change in our current ownership of radio broadcast stations or precludes consummation of our pending acquisitions, other than the pending acquisition of one radio station. These FCC rules and policies will limit the number of additional stations that we may acquire in the future in our markets. Because of these multiple and cross ownership rules, a purchaser of our voting stock which acquires an "attributable" interest in us (as discussed below) may violate the FCC's rules if such purchaser also has an attributable or direct interest in other television or radio stations, or in daily newspapers, depending on the number and location of those radio or television stations or daily newspapers. Such a purchaser also may be restricted in the companies in which it may invest, to the extent that these investments give rise to an attributable interest. If an attributable shareholder of Cumulus violates any of these ownership rules, we may 16 17 be unable to obtain from the FCC one or more authorizations needed to conduct our radio station business and may be unable to obtain FCC consents for certain future acquisitions. The FCC generally applies its television/radio/newspaper cross-ownership rules and its broadcast multiple ownership rules by considering the "attributable," or cognizable, interests held by a person or entity. A person or entity can have such an interest in a radio station, television station or daily newspaper by being an officer, director, partner, shareholder or, in certain cases, a debtholder of a company that owns that station or newspaper. Whether that interest is subject to the FCC's ownership rules is determined by the FCC's attribution rules. If an interest is attributable, the FCC treats the person or entity who holds that interest as the "owner" of the radio station, television station or daily newspaper in question, and therefore subject to the FCC's ownership rules. With respect to a corporation, officers, directors and persons or entities that directly or indirectly can vote 5% or more of the corporation's stock (10% or more of such stock in the case of insurance companies, investment companies, bank trust departments and certain other "passive investors" that hold such stock for investment purposes only) generally are attributed with ownership of the radio stations, television stations and daily newspapers the corporation owns. As discussed below, a local marketing agreement with another station also may result in an attributable interest. See "-- Local Marketing Agreements." With respect to a partnership (or limited liability company), the interest of a general partner is attributable, as is the interest of any limited partner (or limited liability company member) who is "materially involved" in the media-related activities of the partnership (or limited liability company). Debt instruments, non-voting stock, options and warrants for voting stock that have not yet been exercised, limited partnership or limited liability company interests where the limited partner or member is not "materially involved" in the media-related activities of the partnership or limited liability company, and where the limited partnership agreement or limited liability company agreement expressly "insulates" the limited partner or member from such material involvement, and minority (under 5%) voting stock, generally do not subject their holders to attribution, except that non-voting equity and debt interests which in the aggregate constitute 33% or more of a licensee's total equity and debt capitalization are considered attributable in certain circumstances. Programming and Operation. The Communications Act requires broadcasters to serve the "public interest." Broadcasters are required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming will be considered by the FCC when it evaluates the licensee's renewal application, but such complaints may be filed and considered at any time. Stations also must follow various FCC rules that regulate, among other things, political advertising, the broadcast of obscene or indecent programming, sponsorship identification, the broadcast of contests and lotteries, and technical operations (including limits on radio frequency radiation). Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of "short-term" (less than the maximum term) license renewal or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Local Marketing Agreements. A number of radio stations, including certain of our stations, have entered into what are commonly referred to as "local marketing agreements" or "time brokerage agreements" (collectively, "LMAs"). In a typical LMA, the licensee of a station makes available, for a fee, airtime on its station to a party which supplies programming to be broadcast during that airtime, and collects revenues from advertising aired during such programming. LMAs are subject to compliance with the antitrust laws, the Communications Act, and the FCC's rules and policies, including the requirement that the licensee of each station maintain independent control over the programming and other operations of its own station. The FCC has held that such agreements do not violate the Communications Act as long as the licensee of the station that is being substantially programmed by another entity maintains ultimate responsibility for, and control over, operations of its broadcast stations and otherwise ensures compliance with applicable FCC rules and policies. A station that brokers substantial time on another station in its market or engages in an LMA with a station in the same market will be considered to have an attributable ownership interest in the brokered station 17 18 for purposes of the FCC's ownership rules, discussed above. As a result, a broadcast station may not enter into an LMA that allows it to program more than 15% of the broadcast time, on a weekly basis, of another local station that it could not own under the FCC's local multiple ownership rules. Proposed Changes. The FCC, in 1997, awarded two licenses for the provision of satellite-delivered digital audio radio services. Under rules adopted for this service, licensees must begin operating within four years after the date of licensing, and must be operating their entire system within six years after that date. Digital technology also may be used in the future by terrestrial radio broadcast stations either on existing or alternate broadcasting frequencies, and the FCC has stated that it will consider making changes to its rules to permit AM and FM radio stations to offer digital audio broadcasting following industry analysis of technical standards and has invited and received comments on a petition requesting the FCC to initiate rule making with respect to terrestrial digital audio broadcasting. In January 2000, the FCC released a Report and Order adopting rules for a new low power FM radio service consisting of two classes of stations, one with a maximum power of 100 watts and the other with a maximum power of 10 watts. The FCC has limited ownership and operation of low power FM stations to persons and entities which do not currently have an attributable interest in any FM station and has required that low power FM stations be operated on a non-commercial educational basis. Various parties have appealed the FCC's decision in the Report and Order. The Commerce, Justice, State Appropriations Act, which was signed into law on December 21, 2000, included language from the Radio Broadcasting Preservation Act of 2000 imposing restrictions on the operation of low-power FM radio stations. A bill has been introduced to repeal this provision, but no action has been taken on that bill to date. In light of the passage of the Appropriations Act, the NAB and FCC have asked the D.C. Court of Appeals to remand a court challenge to the FCC so the original low-power FM rules can be brought into compliance with the new law. We cannot predict what impact low power FM radio will have on our operations. Adverse effects of a new low power FM service on our operations could include interference with our stations, and competition by low power stations for listeners and revenues. In addition, from time to time Congress and the FCC have considered, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of our radio stations, result in the loss of audience share and advertising revenues for our radio stations, and affect the ability of Cumulus to acquire additional radio stations or finance such acquisitions. The foregoing is a brief summary of certain provisions of the Communications Act, the Telecom Act and specific FCC rules and policies. This description does not purport to be comprehensive, and reference should be made to the Communications Act, the FCC's rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of radio broadcast stations. Antitrust and Market Concentration Considerations. Certain of our future acquisitions, to the extent they meet specified size thresholds, will be subject to applicable waiting periods and possible review under the Hart-Scott-Radino Antitrust Improvements Act of 1976, as amended ("HSR Act") by the Department of Justice or the Federal Trade Commission, which evaluate transactions to determine whether those transactions should be challenged under the federal antitrust laws. In February 2001, amendments to the HSR Act become effective providing that transactions will be subject to the HSR Act only if the acquisition price or fair market value of the stations to be acquired is $50,000,000 or more. Most of our past acquisitions have not met this threshold. Acquisitions that are not required to be reported under the HSR Act may still be investigated by the Department of Justice or the Federal Trade Commission under the antitrust laws before or after consummation. At any time before or after the consummation of a proposed acquisition, the Department of Justice or the Federal Trade Commission could take such action under the antitrust laws as it deems necessary, including seeking to enjoin the acquisition or seeking divestiture of the business acquired or certain of our other assets. The Department of Justice has reviewed numerous radio station acquisitions, where an operator proposes to acquire additional stations in its existing markets or multiple stations in new markets, and has challenged a number of such transactions. Some of these challenges have resulted in consent decrees requiring the sale of certain stations, the termination of LMAs or other relief. In general, the Department of 18 19 Justice has more closely scrutinized radio mergers and acquisitions resulting in local market shares in excess of 35% of local radio advertising revenues, depending on format, signal strength and other factors. There is no precise numerical rule, however, and certain transactions resulting in more than 35% revenue shares have not been challenged, while certain other transactions may be challenged based on other criteria such as audience shares in one or more demographic groups as well as the percentage of revenue share. We estimate that we have more than a 35% share of radio advertising revenues in many of our markets. We are aware that the Department of Justice has commenced, and subsequently discontinued, investigations of several acquisitions and pending acquisitions by Cumulus. The Department of Justice can be expected to continue to enforce the antitrust laws in this manner, and there can be no assurance that one or more of our pending or future acquisitions are not or will not be the subject of an investigation or enforcement action by the Department of Justice or the Federal Trade Commission. Similarly, there can be no assurance that the Department of Justice, the Federal Trade Commission or the FCC will not prohibit such acquisitions, require that they be restructured, or in appropriate cases, require that the Company divest stations it already owns in a particular market. In addition, private parties may under certain circumstances bring legal action to challenge an acquisition under the antitrust laws. As part of its review of certain radio station acquisitions, the Department of Justice has stated publicly that it believes that commencement of operations under LMAs, joint sales agreements and other similar agreements customarily entered into in connection with radio station ownership transfers prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. In connection with acquisitions subject to the waiting period under the HSR Act, we will not commence operation of any affected station to be acquired under an LMA or similar agreement until the waiting period has expired or been terminated. In addition, where acquisitions would result in certain local radio advertising revenue concentration thresholds being met, the FCC staff has a policy of reviewing applications for proposed radio station acquisitions with respect to local market concentration concerns. The FCC places a specific notation on the public notices with respect to proposed radio station acquisitions that it believes may raise local market concentration concerns inviting public comment on such matters, and in some cases may request additional information with respect to such acquisitions. Such policy may help trigger petitions to deny and informal objections against FCC applications for certain pending acquisitions and future acquisitions. Specifically, the FCC staff has stated publicly that it will review proposed acquisitions with respect to local radio market concentration if publicly available sources indicate that, following such acquisitions, one party would receive 50% or more of the radio advertising revenues in such local radio market, or that any two parties would together receive 70% or more of such revenues, notwithstanding that the proposed acquisitions would comply with the station ownership limits in the Telecom Act and the FCC's multiple ownership rules. The FCC has, from time to time, placed such notations on the public notices with respect to a number of Cumulus applications and has conducted such reviews with respect to certain of these applications. Competitors have also filed petitions to deny which are currently pending before the FCC on the basis of market concentration and/or other alleged non-compliance with the Communications Act and FCC rules and policies against certain of the Company's pending acquisitions and dispositions in four markets (Columbus-Starkville, Mississippi; Columbus, Georgia; Tallahassee, Florida; and Topeka, Kansas). All such petitions and FCC concerns regarding market concentration must be resolved before FCC approval can be obtained and the acquisitions can be consummated. In addition, the FCC has recently proposed new rules to define a "market" for purposes of the local radio station ownership limits in the Telecom Act and the FCC's multiple ownership rules, which if adopted potentially could reduce the number of stations that Cumulus would be allowed to acquire in some markets, and could limit our ability to sell all of the stations we own in certain markets to a single purchaser, which could diminish the value of those markets to potential acquirers. 19 20 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to the executive officers of the Company as of March 1, 2001:
NAME AGE POSITION(S) ---- --- ----------- Lewis W. Dickey, Jr. ............. 39 Chairman, President and Chief Executive Officer Jonathon G. Pinch................. 52 Executive Vice President, Chief Operating Officer Martin R. Gausvik................. 43 Executive Vice President, Chief Financial Officer and Treasurer John Dickey....................... 33 Executive Vice President
LEWIS W. DICKEY, JR. has served as our Chairman, President and CEO since December 2000, and as a Director since March 1998. Mr. Dickey was a founder and an initial investor in Cumulus Media, LLC through his interest in CML Holdings LLC and owns 75% of the outstanding equity interests of DBBC of Georgia, LLC, which was a Managing Member of Cumulus Media, LLC. He served as Executive Vice Chairman and a Director of Cumulus Media, LLC from its inception in April 1997 until its dissolution in June 1998. Mr. Dickey is the founder and was President of Stratford Research, Inc. from September 1985 to March 1998 and owns 25% of the outstanding capital stock of Stratford Research, Inc. Stratford Research, Inc. is a strategy consulting and market research firm advising radio and television broadcasters as well as other media related industries. From January 1988 until March 1998, Mr. Dickey served as President and Chief Operating Officer of Midwestern Broadcasting Corporation, which operated two stations in Toledo, Ohio that were acquired by the Company in November 1997. He also has an ownership interest (along with members of his family and others) in three stations in Nashville, Tennessee: WQQK-FM, WNPL-FM and WVOL-AM. Mr. Dickey is a nationally regarded consultant on radio strategy and the author of The Franchise -- Building Radio Brands, published by the National Association of Broadcasters, one of the industry's leading texts on competition and strategy. He holds Bachelor of Arts and Master of Arts degrees from Stanford University and a Master of Business Administration degree from Harvard University. Mr. Dickey is the brother of John Dickey. JONATHON G. PINCH has served as our Executive Vice President and Chief Operating Officer since December 2000. Mr. Pinch joined the Company effective December 1, 2000, after a highly successful tenure as the President of Clear Channel International Radio ("CCU International") (NYSE: CCU). At rapidly growing CCU International, Mr. Pinch was responsible for the management of all CCU radio operations outside of the United States, which included over 300 properties in 9 countries. Mr. Pinch is a 30 year broadcast veteran and has previously served as Owner/President WTVK-TV Ft Myers-Naples Florida, General Manager WMTX-FM/WHBO-AM Tampa Florida, General Manager/Owner WKLH-FM Milwaukee, GM WXJY Milwaukee. MARTIN R. GAUSVIK is our Executive Vice President, Chief Financial Officer and Treasurer. Mr. Gausvik joined the Company effective May 29, 2000 and is a 17-year veteran of the radio industry, having served as Vice President Finance for Jacor Communications from 1996 until the merger of Jacor's 250 radio station group with Clear Channel Communications in May 1999. More recently, he was Executive Vice President and Chief Financial Officer of Latin Communications Group, the operator of 17 radio stations serving major markets in the Western U.S. Prior to joining Jacor, from 1984 to 1996, Gausvik held various accounting and financial positions with Taft Broadcasting, including Controller of Taft's successor company, Citicasters. JOHN DICKEY is our Executive Vice President. Mr. Dickey has served as Executive Vice President of Stratford Research, Inc. since June 1988. He served as Director of Programming for Midwestern Broadcasting from January 1990 to March 1998 and is a partner in Stratford Research, Inc. as well as an ownership interest (along with members of his family and Mr. Weening) in three stations in Nashville, Tennessee: WQQK-FM, WNPL-FM and WVOL-AM. Mr. Dickey also owns 25% of the outstanding capital stock of Stratford Research, Inc. and 25% of the outstanding equity interests of DBBC of Georgia, LLC. Mr. Dickey holds a Bachelor of Arts degree from Stanford University. Mr. Dickey is the brother of Lewis W. Dickey, Jr. 20 21 ITEM 2. PROPERTIES The types of properties required to support each of our radio stations include offices, studios, transmitter sites and antenna sites. A station's studios are generally housed with its offices in business districts of the station's community of license or largest nearby community. The transmitter sites and antenna sites are generally located so as to provide maximum market coverage. At December 31, 2000, the Company owned studio facilities in thirty-nine markets and it owned transmitter and antenna sites in forty markets. We lease additional studio and office facilities in thirty-six markets and additional transmitter and antenna sites in thirty-nine markets. In addition, the Company leases corporate office space in Atlanta, GA, Chicago, IL, and Milwaukee, WI, which in the aggregate approximates 30,166 sq. ft. During 2000, the Company commenced a plan to close its Chicago and Milwaukee offices and consolidated its corporate office in Atlanta, GA. We do not anticipate any difficulties in renewing any facility leases or in leasing alternative or additional space, if required. The Company owns or leases substantially all of its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. No single property is material to our operations. We believe that our properties are generally in good condition and suitable for our operations; however, we continually look for opportunities to upgrade our properties and intend to upgrade studios, office space and transmission facilities in certain markets. ITEM 3. LEGAL PROCEEDINGS The Company had been named as a defendant in the following eleven class action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc., et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v. Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus Media Inc., et al.; (7) Kincer v. Weening, et al.; (8) Krim v. Cumulus Media Inc., et al.; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening, et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former directors and officers of the Company, and certain underwriters of the Company's stock, have also been named as defendants. The complaints have all been filed in the United States District Court for the Eastern District of Wisconsin. They were filed as class actions on behalf of persons who purchased or acquired Cumulus Media common stock during various time periods between May 11, 1999 and April 24, 2000. On August 4, 2000, the eleven actions were consolidated into a single action, also pending in the United States District Court for the Eastern District of Wisconsin. On December 8, 2000, plaintiffs served a Second Amended Consolidated Class Action Complaint, which alleges, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under, and Sections 11 and 12(a) of the Securities Act of 1933, and seeks unspecified damages. The plaintiffs allege that the defendants issued false and misleading statements and failed to disclose material facts concerning, among other things, the Company's financial condition as a result of the restatement on May 26, 2000 of the Company's results for the first three quarters of 1999. The plaintiffs further allege that because of the issuance of false and misleading statements and/or failure to disclose material facts, the price of Cumulus Media stock was artificially inflated. On February 8, 2001, the Company served its motion to dismiss the second amended complaint. In 1999, the Company was served with a complaint filed in state court in New York, seeking approximately $1.9 million in damages arising from the Company's alleged breach of national representation agreements. To date, the Company has filed an answer to the complaint which denies liability and asserts a variety of affirmative defenses. On February 15, 2001, the Company's current national representation agent agreed to indemnify, defend and hold harmless the Company against any loss, liability, cost or expense in connection with this matter. In 1999, the Company was served with a complaint filed in county court in Alabama alleging that in August 1997, an employee of Colonial Broadcasting, Inc., which we acquired in July 1998, was at fault in connection with an automobile accident. The plaintiff is seeking $8.5 million damages. We believe we have a right to indemnification from the sellers of Colonial Broadcasting under the related purchase agreement. The seller's insurance company has assumed the defense of the matter. 21 22 In addition, we currently and from time to time are involved in litigation incidental to the conduct of our business. Other than as discussed above, the Company is not a party to any lawsuit or proceeding which, in our opinion, is likely to have a material adverse effect. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter, October 1, 2000 through December 31, 2000, there were no matters submitted to a vote of security holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Shares of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), have been quoted on the Nasdaq National Market under the symbol CMLS since the consummation of the initial public offering of the Company's Class A Common Stock on July 1, 1998. The following table sets forth, for the calendar quarters indicated, the high and low closing sales prices of the Class A Common Stock on the Nasdaq National Market, as reported in published financial sources.
YEAR HIGH LOW - ---- ---- --- 1998 Third Quarter.......................................... $17.88 $ 7.75 Fourth Quarter......................................... $17.25 $ 4.88 1999 First Quarter.......................................... $17.88 $ 9.75 Second Quarter......................................... $21.88 $13.25 Third Quarter.......................................... $32.69 $20.00 Fourth Quarter......................................... $53.00 $29.25 2000 First Quarter.......................................... $50.38 $13.06 Second Quarter......................................... $14.63 $ 7.81 Third Quarter.......................................... $11.56 $ 4.06 Fourth Quarter......................................... $ 7.00 $ 3.19 2001 First Quarter (thru March 16, 2001).................... $ 8.25 $ 3.75
As of March 16, 2001, there were approximately 130 holders of record of the Class A Common Stock. The Company has not declared or paid any cash dividends on its Class A Common Stock since its inception and does not currently anticipate paying any cash dividends on its Class A Common Stock in the foreseeable future. The Company intends to retain future earnings for use in its business. The Company is currently subject to restrictions under the terms of the $225.0 million senior credit facility ("Credit Facility"), the indenture (the "Indenture") governing the $160.0 million of 10 3/8 Senior Subordinated Notes due 2008 ("Notes") and the certificate of designations (the "Certificate of Designations") governing the 13.75% Series A Cumulative Exchangeable Redeemable Preferred Stock (the "Series A Preferred Stock") that limit the amount of cash dividends that may be paid on its Class A Common Stock. The Company may pay cash dividends on its Class A Common Stock in the future only if certain financial tests set forth in the Credit Facility, the Indenture and the Certificate of Designations are met and only if it fulfills its obligations to pay dividends to the holders of its Series A Preferred Stock. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated historical financial data presented below has been derived from the audited consolidated financial statements of Cumulus Media Inc. as of and for the years ended December 31, 2000, 22 23 1999 and 1998. The consolidated historical financial data of Cumulus Media Inc. are not comparable from year to year because of the acquisition and disposition of various radio stations by the Company during the periods covered. This data should be read in conjunction with the audited, consolidated financial statements of Cumulus Media Inc., the related notes thereto, as set forth in Part II, Item 8 and with "Management's Discussion and Analysis of Financial Conditions and Results of Operations" set forth in Part II, Item 7 herein (dollars in thousands, except per share data).
PERIOD FROM YEAR YEAR YEAR INCEPTION ON ENDED ENDED ENDED MAY 22, 1997 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 1997 ------------ ------------ ------------ --------------- Net revenues................................ $ 225,911 $ 180,019 $ 98,787 $ 9,163 Station operating expenses excluding depreciation and amortization............. 191,336 133,328 72,154 7,147 Depreciation and amortization............... 44,003 32,564 17,113 1,671 LMA fees.................................... 4,825 4,165 2,404 -- Corporate general and administrative expenses (includes non-cash stock compensation expense of $0, $0, $0 and $1,689, respectively)..................... 18,232 8,204 5,607 2,965 Restructuring and other charges............. 16,226 -- -- -- --------- --------- --------- -------- Operating income (loss)..................... (48,711) 1,758 1,509 (2,620) Net interest expense........................ (26,055) (22,877) (13,178) (837) Other income (expense), net................. 73,280 627 (2) (54) Loss before extraordinary item.............. (2,298) (13,622) (9,445) (3,578) Extraordinary loss on early extinguishment of debt................................... -- -- (1,837) -- Net loss.................................... (2,298) (13,622) (11,282) (3,578) Preferred stock dividends, deemed dividends, accretion of discount and redemption premium................................... 14,875 23,790 13,591 274 Net loss attributable to common stockholders.............................. $ (17,173) $ (37,412) $ (24,873) $ (3,852) Basic and diluted loss per common share..... $ (0.49) $ (1.50) $ (1.55) $ (0.31) OTHER FINANCIAL DATA: Broadcast Cash Flow......................... $ 34,575 $ 46,691 $ 26,633 $ 2,016 EBITDA...................................... 16,343 38,487 21,026 740 Net cash used in operating activities....... (14,565) (13,644) (4,653) (1,887) Net cash used in investing activities....... (190,274) (192,105) (351,025) (95,100) Net cash (used in)/provided by financing activities...................... (3,763) 400,445 378,990 98,560 BALANCE SHEET DATA: Total assets................................ $ 954,935 $ 914,888 $ 514,363 $110,441 Long-term debt (including current portion).................................. 285,228 285,247 222,767 42,801 Preferred stock subject to mandatory redemption................................ 119,708 102,732 133,741 13,426 Stockholders' equity........................ 471,872 488,442 127,554 49,976
23 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following information in conjunction with our consolidated financial statements and notes to our consolidated financial statements appearing in pages F-1 through F-32 in this Form 10-K. This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. OVERVIEW The following is a discussion of the key factors that have affected our business since its inception on May 22, 1997. The following information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this report. For the period from our inception through December 31, 2000, we have purchased or entered into local marketing, management and consulting agreements with radio stations throughout the U.S. and Caribbean. The following discussion of our financial condition and results of operations includes the results of these acquisitions and local marketing, management and consulting agreements. We currently own and operate 186 stations in 42 U.S. markets and provide sales and marketing services under local marketing, management and consulting agreements (pending FCC approval of acquisition) to 41 stations in 16 U.S. markets. We currently own five stations and have obtained a license to commence operations on one station in the Caribbean market. We are the second largest radio broadcasting company in the U.S. based on number of stations. We believe we are the tenth largest radio broadcasting company in the U.S. based on 2000 pro forma net revenues. We will own and operate a total of 225 radio stations (164 FM and 61 AM) in 46 U.S. markets upon FCC approval of all pending acquisitions and divestitures. ADVERTISING REVENUE AND BROADCAST CASH FLOW Our primary source of revenues is the sale of advertising time on our radio stations. Our sales of advertising time are primarily affected by the demand for advertising time from local, regional and national advertisers and the advertising rates charged by our radio stations. Advertising demand and rates are based primarily on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron on a periodic basis, generally once, twice or four times per year. Because audience ratings in local markets are crucial to a station's financial success, we endeavor to develop strong listener loyalty. We believe that the diversification of formats on our stations helps to insulate them from the effects of changes in the musical tastes of the public with respect to any particular format. The number of advertisements that can be broadcast without jeopardizing listening levels and the resulting rating is limited in part by the format of a particular station. Our stations strive to maximize revenue by constantly managing the number of commercials available for sale and adjusting prices based upon local market conditions. In the broadcasting industry, radio stations sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of for cash. Our use of trade agreements resulted in immaterial operating income during the years ended December 31, 2000, 1999 and 1998. We will seek to continue to minimize our use of trade agreements. Our advertising contracts are generally short-term. We generate most of our revenue from local and regional advertising, which is sold primarily by a station's sales staff. During the years ended December 31, 2000, 1999 and 1998 approximately 89%, 89% and 88%, respectively, of our revenues were from local advertising. To generate national advertising sales, we engage Interep National Radio Sales, Inc., a national representative company. Our revenues vary throughout the year. As is typical in the radio broadcasting industry, we expect our first calendar quarter will produce the lowest revenues for the year, and the fourth calendar quarter will generally produce the highest revenues for the year, with the exception of certain of our stations, such as those in Myrtle Beach, South Carolina, where the stations generally earn higher revenues in the second and third quarters of the year because of the higher seasonal population in those communities. Our operating results in any period 24 25 may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods, if at all. Our most significant station operating expenses are employee salaries and commissions, programming expenses, advertising and promotional expenditures, technical expenses, and general and administrative expenses. We strive to control these expenses by working closely with local station management. The performance of radio station groups, such as ours, is customarily measured by the ability to generate broadcast cash flow. RESULTS OF OPERATIONS Management's discussion and analysis of results of operations for the years ended December 31, 2000, 1999 and 1998 have been presented on an historical basis. Additionally, for net revenue, operating expenses, and operating income before depreciation and amortization we have included management's discussion and analysis of results of operations on a pro forma basis. The pro forma results for 2000 compared to 1999 assume all of the acquisitions described in Item I, Part I of this report had occurred on January 1, 1999. YEAR ENDED DECEMBER 31, 2000 VERSUS THE YEAR ENDED DECEMBER 31, 1999 Net Revenues. Net revenues increased $45.9 million, or 25.5%, to $225.9 million for the year ended December 31, 2000 from $180.0 million for the year ended December 31, 1999. This increase was primarily attributable to the acquisition of radio stations during the year ended December 31, 2000 (approximately $22.3 million of increase), operating certain radio stations acquired in 1999 for a full twelve months (approximately $8.4 million of increase), and improved spot utilization. In addition, on a same station basis, net revenue for the 160 stations in 30 markets operated for at least a full year increased $2.1 million or 1.7% to $126.5 million for the year ended December 31, 2000, compared to net revenues of $124.4 million for the year ended December 31, 1999. The increase in same station net revenue is the result of additional local revenue generated from improved spot utilization from the sale of radio spots. Station Operating Expenses, excluding Depreciation, Amortization and LMA Fees. Station operating expenses excluding depreciation, amortization and LMA fees increased $58.0 million, or 43.5%, to $191.3 million for the year ended December 31, 2000 from $133.3 million for the year ended December 31, 1999. This increase was primarily attributable to the acquisition of radio stations during the year ended December 31, 2000 (approximately $14.6 million of increase), operating certain radio stations acquired in 1999 for a full twelve months (approximately $5.5 million of increase), as well as the recognition of unusual bad debt expense of approximately $20.2 million. The unusually high bad debt expense recorded for the year ended December 31, 2000 was primarily the result of the following factors: (1) the completion of the first and second phases of the asset exchange and sales transactions with Clear Channel Communications, and the coincidental loss of local employee incentive to enforce the collection of receivables in divested markets, (2) the detrimental effects of certain pre-existing credit and collection policies and sales employee compensation policies, (3) significant turnover of management and sales force, including representatives who maintained relationships with trade debtors and had responsibility for ensuring collection of outstanding invoices, and (4) overall declines in the U.S. economy. During the third quarter of 2000, the Company implemented a new credit and collection policy across all markets designed to ensure uniform procedures for the extension of credit and the collection of receivables. The management team has also created incentives for the Company's sales personnel in each of our markets to collect delinquent accounts receivable. We believe that these policies and procedures will reduce the Company's loss experience from uncollectible accounts receivable. In addition, on a same station basis, for the 160 stations in 30 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees increased $4.6 million, or 5.0%, to $96.9 million for the year ended December 31, 2000 compared to $92.3 million for the year ended December 31, 1999. The increase in same station operating expenses excluding depreciation, amortization and LMA fees are primarily attributable to the increased variable selling costs associated with additional same station net revenue discussed above (approximately $4.4 million of increase). 25 26 Depreciation and Amortization. Depreciation and amortization increased $11.4 million, or 35.0%, to $44.0 million for the year ended December 31, 2000 compared to $32.6 million for the year ended December 31, 1999. This increase was primarily attributable to depreciation and amortization relating to radio station acquisitions consummated during 2000 and a full year of depreciation and amortization on radio station acquisitions consummated during 1999. LMA Fees. LMA fees increased $0.6 million, or 14.3%, to $4.8 million for the year ended December 31, 2000 from $4.2 million for the year ended December 31, 1999. This increase was primarily attributable to local marketing, management and consulting fees paid to sellers in connection with the commencement of operations, management of or consulting services provided to radio stations during 2000. Corporate, General and Administrative Expenses. Corporate, general and administrative expenses increased $10.0 million, or 122.2%, to $18.2 million for the year ended December 31, 2000 compared to $8.2 million for the year ended December 31, 1999. The increase in corporate general and administrative expense was primarily attributable to corporate resources added during 2000 to effectively manage the Company's new structure and growing radio station portfolio; plus one-time, non-recurring expenses relative to the termination of employees and employee moving expense (approximately $1.4 million of increase), an aircraft lease which was also terminated (approximately $0.5 million of increase) and increased audit, legal, and insurance fees (approximately $0.2 million of increase). Other Income (Expense), Net. Other income, net, increased $72.7 million, to $73.3 million for the year ended December 31, 2000 compared to $0.6 million for the year ended December 31, 1999. This increase was primarily attributable to a gain on sale of $75.6 million, realized upon the transfer of 53 stations in 10 markets along with certain tangible property associated with 44 stations in 8 markets to Clear Channel Communications in the third and fourth quarter of 2000, offset by the write-off of $1.2 million of costs associated with failed acquisitions and the write-off of commitment fees associated with unutilized financing arrangements. Income Tax Expense (Benefit). Income tax expense increased by $7.7 million to $0.8 million for the year ended December 31, 2000 compared with an income tax benefit of $6.9 million for the year ended December 31, 1999. This increase was primarily attributable to deferred tax expense on the Company's third and fourth quarter gain on sales of stations incurred as a result of the completion of the asset sales with Clear Channel Communications. Preferred Stock Dividends, Deemed Dividends, Accretion of Discount and Premium on Redemption of Preferred Stock. Preferred stock dividends, accretion of discount and premium on redemption of preferred stock decreased $8.9 million, or 37.4%, to $14.9 million for the year ended December 31, 2000 compared to $23.8 million for the year ended December 31, 1999. This decrease was attributable to the redemption of 43,750 shares of the Company's Series A Preferred Stock on October 1, 1999. The fair value of common stock purchase warrants was recognized in the fourth quarter of 2000 as a deemed dividend on the Series B Preferred Stock, increasing the net loss attributable to common stockholders' by $0.1 million. Net Loss Attributable to Common Stockholders. As a result of the factors describe above, net loss attributable to common stockholders decreased $20.2 million, or 54.0%, to $17.2 million for the year ended December 31, 2000 compared to $37.4 million for the year ended December 31, 1999. Broadcast Cash Flow. As a result of the factors described above, Broadcast Cash Flow decreased $12.1 million, or 25.9%, to $34.6 million for the year ended December 31, 2000 compared to $46.7 million for the year ended December 31, 1999. EBITDA. As a result of the factors described above, EBITDA decreased $22.2 million, or 57.7%, to $16.3 million for the year ended December 31, 2000 compared to $38.5 million for the year ended December 31, 1999. Intangible Assets. Intangible assets, net of amortization, were $763.0 million and $526.8 million as of December 31, 2000 and 1999, respectively. These intangible asset balances primarily consist of broadcast licenses and goodwill, although the Company possesses certain other intangible assets obtained in connection with our acquisitions, such as non-compete agreements. The increase in intangible assets, net during 2000 is 26 27 attributable to acquisitions during the year, including the Connoisseur acquisition, less the net dispositions in the asset exchange and sales transactions with Clear Channel. Specifically identified intangible assets, including broadcasting licenses, are recorded at their estimated fair value on the date of the related acquisition. Goodwill represents the excess of purchase price over the fair value of tangible assets and specifically identified intangible assets. Although intangible assets are recorded in the Company's financial statements at amortized cost, we believe that such assets, especially broadcast licenses, can significantly appreciate in value by successfully executing our operating strategy, which is described herein. The Company recognized accounting gains of $75.6 million during 2000 from a series of asset exchange and sales transactions with Clear Channel. We believe these gains indicate that certain internally generated intangible assets, which are not recorded for accounting purposes, can significantly increase the value of our portfolio of stations over time. The Company's strategic initiative to focus on its core radio business is designed to enhance the overall value of our stations and maximize the value of the related broadcast licenses. PRO FORMA -- YEAR ENDED DECEMBER 31, 2000 VERSUS THE YEAR ENDED DECEMBER 31, 1999 The pro forma results for 2000 compared to 1999 presented below assume that the 225 radio stations owned or operated by the Company for any portion of 2000 were acquired effective January 1, 1999 (dollars in thousands).
YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- Net revenues.................................. $218,011 $214,402 Station operating expenses excluding depreciation and amortization and LMA fees........................................ 163,430 156,128 -------- -------- Operating income before depreciation and amortization and LMA fees................... $ 54,581 $ 58,274 ======== ========
Pro forma net revenues for the year ended December 31, 2000 increased 1.7% to $218.0 million. Pro forma station operating expenses excluding depreciation, amortization and LMA fees for the year ended December 31, 2000 increased 4.7% to $163.4 million. The majority of the increase in pro forma net revenues from 1999 to 2000 is due to an increase in political billings due to the 2000 elections as well as improved spot utilization. The majority of the increase in pro forma station operating expenses excluding depreciation, amortization and LMA fees is due to increased bad debt expense associated with a deterioration of the Company's accounts receivable as well as increased selling costs associated with pro forma net revenue. YEAR ENDED DECEMBER 31, 1999 VERSUS THE YEAR ENDED DECEMBER 31, 1998. Net Revenues. Net revenues increased $81.2 million, or 82.2%, to $180.0 million for the year ended December 31, 1999 from $98.8 million for the year ended December 31, 1998. This increase was primarily attributable to the acquisition of radio stations (approximately $67.3 million of increase) and revenues generated from local marketing, management and consulting agreements entered into during the year ended December 31, 1999 (approximately $13.9 million of increase). In addition, on a same station basis, net revenue for the 195 stations in 36 markets operated for at least a full year increased $21.2 million or 16.2% to $152.3 million for the year ended December 31, 1999, compared to net revenues of $131.1 million for the year ended December 31, 1998. The increase in same station net revenue is the result of additional local revenue generated from improved spot utilization from the sale of radio spots, combined with increases in promotional and event revenue. Station Operating Expenses, excluding Depreciation, Amortization and LMA Fees. Station operating expenses excluding depreciation, amortization and LMA fees increased $61.2 million, or 84.5%, to $133.3 million for the year ended December 31, 1999 from $72.2 million for the year ended December 31, 1998. This increase was primarily attributable to the acquisition of radio stations (approximately $51.2 million of increase) and operating expenses incurred from local marketing, management and consulting agreements entered into during the year ended December 31, 1999 (approximately $10.0 million of increase). 27 28 In addition, on a same station basis, for the 195 stations in 36 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees increased $13.9 million, or 14.1%, to $112.5 million for the year ended December 31, 1999 compared to $98.6 million for the year ended December 31, 1998. The increase in same station operating expenses excluding depreciation, amortization and LMA fees are attributable to the additional sales and programming personnel added in substantially all of the markets we operated during the year, in addition to the increased variable selling costs, and promotional and event costs associated with additional same station net revenue discussed above. Depreciation and Amortization. Depreciation and amortization increased $15.5 million, or 90.2%, to $32.6 million for the year ended December 31, 1999 compared to $17.1 million for the year ended December 31, 1998. This increase was primarily attributable to depreciation and amortization relating to radio station acquisitions consummated during 1999 (approximately $4.4 million of increase) and a full year of depreciation and amortization on radio station acquisitions consummated during 1998 (approximately $11.1 million of increase). LMA Fees. LMA fees increased $1.8 million, or 73.3 %, to $4.2 million for the year ended December 31, 1999 from $2.4 million for the year ended December 31, 1998. This increase was primarily attributable to local marketing, management and consulting fees paid to sellers in connection with the commencement of operations, management of or consulting services provided to radio stations during 1999. Corporate, General and Administrative Expenses. Corporate, general and administrative expenses increased $2.6 million, or 46.3%, to $8.2 million for the year ended December 31, 1999 compared to $5.6 million for the year ended December 31, 1998. The increase in corporate general and administrative expense was primarily attributable to corporate resources added during 1999 to effectively manage the Company's growing radio station portfolio. Other Expense (Income). Interest expense, net of interest income, increased by $9.7 million, or 73.6%, to $22.9 million for the year ended December 31, 1999 compared to $13.2 million for the year ended December 31, 1998. This increase was primarily attributable to higher debt levels incurred to finance the Company's acquisitions (approximately $9.0 million of increase). Additionally, our borrowing rates increased 162.3 basis points over the second half of 1999 as a result of increases in the underlying Eurodollar Base Rate as defined in the Company's Credit Facility (approximately $0.7 million of increase). Income Tax Expense (Benefit). The $4.6 million or 208.6% increase in the tax benefit for the year ended December 31, 1999, compared to the year ended December 31, 1998, is primarily attributable to an $8.8 million, or 74.5%, increase in our loss before income taxes for the year ended December 31, 1999, compared to the year ended December 31, 1998. Preferred Stock Dividends, Deemed Dividends, Accretion of Discount and Premium on Redemption of Preferred Stock. Preferred stock dividends, accretion of discount and premium on redemption of preferred stock increased $10.2 million, or 75.0%, to $23.8 million for the year ended December 31, 1999 compared to $13.6 million for the year ended December 31, 1998. This increase was attributable to the issuance of dividend shares paid in kind on the Company's Series A Preferred Stock for the quarters ended March 31, June 30, September 30 and December 31, 1999, and a $6.0 million redemption premium paid on October 1, 1999 on the redemption of 43,750 shares of the Company's Series A Preferred Stock. Net Income (Loss) Attributable to Common Stockholders. As a result of the factors described above, net loss attributable to common stockholders increased $12.5 million, or 50.4%, to $37.4 million for the year ended December 31, 1999 compared to $24.9 million for the year ended December 31, 1998. Broadcast Cash Flow. As a result of the factors described above, Broadcast Cash Flow increased $20.1 million, or 75.3%, to $46.7 million for the year ended December 31, 1999 compared to $26.6 million for the year ended December 31, 1998. EBITDA. As a result of the factors described above, EBITDA increased $17.5 million, or 83.0%, to $38.5 million for the year ended December 31, 1999 compared to $21.0 million for the year ended December 31, 1998. 28 29 PRO FORMA -- YEAR ENDED DECEMBER 31, 1999 VERSUS THE YEAR ENDED DECEMBER 31, 1998 The pro forma results for 1999 compared to 1998 presented below assume that the 305 radio stations owned or operated by the Company for any portion of 1999 were acquired effective January 1, 1998 (dollars in thousands).
YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- Net revenues.................................. $253,234 $230,184 Station operating expenses excluding depreciation and amortization and LMA fees........................................ 186,208 171,220 -------- -------- Operating income before depreciation and amortization and LMA fees................... $ 67,026 $ 58,964 ======== ========
Pro forma net revenues for the year ended December 31, 1999 increased 10.0% to $253.2 million. Pro forma station operating expenses excluding depreciation, amortization and LMA fees for the year ended December 31, 1999 increased 8.7% to $186.2 million from $171.2 million for the year ended December 31, 1998. The majority of the increase in pro forma net revenues from 1998 to 1999 is due to an improvement in the utilization of advertising spot inventory at the station level during the calendar year. The majority of the increase in pro forma station operating expenses excluding depreciation, amortization and LMA fees is due to the increase in programming, promotion and selling expenses associated with the increase in personnel in the markets we operated during the year, along with the expenses associated with the additional spot, promotion and event revenue, and with the Company's operation of the radio stations subsequent to the respective acquisition dates. SEASONALITY The Company expects that its operations and revenues will be seasonal in nature, with generally lower revenue generated in the first quarter of the year and generally higher revenue generated in the fourth quarter of the year. The seasonality of the Company's business reflects the adult orientation of the Company's formats and relationship between advertising purchases on these formats with the retail cycle. This seasonality causes and will likely continue to cause a variation in the Company's quarterly operating results. Such variations could have an effect on the timing of the Company's cash flows. LIQUIDITY AND CAPITAL RESOURCES Our principal need for funds has been to fund the acquisition of radio stations and to a lesser extent, working capital needs, capital expenditures and interest and debt service payments. Our principal sources of funds for these requirements have been cash flow from financing activities, such as the proceeds from the offering of our debt and equity securities and borrowings under credit agreements. Our principal need for funds in the future are expected to include the need to fund future acquisitions, interest and debt service payments, working capital needs and capital expenditures. We believe the Company's present cash positions will be sufficient to meet our capital needs through late second quarter or early third quarter 2001. Beyond that time, the Company will need to raise approximately $40.0 million, through additional draws available under the its current revolving credit facility or through the issuance of stock or other securities to fund its pending acquisitions. We believe that availability under our credit facility, cash generated from operations or future asset sales and proceeds from future debt or equity financing will be sufficient to meet our capital needs. The ability of the Company to complete its pending acquisitions is, however, dependent upon on the Company's ability to obtain additional equity and/or debt financing. There can be no assurance that the Company will be able to obtain such financing. For the year ended December 31, 2000, net cash used in operations increased $0.9 million, to $14.6 million, from net cash used in operations of $13.6 million for the year ended December 31, 1999. This increase was due primarily to the maturing of our markets and increased focus managing our current properties. 29 30 For the year ended December 31, 2000, net cash used in investing activities decreased $1.8 million, to $190.3 million, from $192.1 million for the year ended December 31, 1999. This decrease was due primarily to the acquisition of the Connoisseur markets on October 2, 2000. For the year ended December 31, 2000, net cash used in financing activities was $3.8 million, compared to net cash provided by financing activities of $400.4 million during the year ended December 31, 1999. The decrease in cash flows from financing activities during the year ended December 31, 2000 was the result of funding our acquisitions with asset sales rather than debt and equity. Historical Acquisitions. During the year ended December 31, 2000, the Company completed 76 acquisitions across 28 markets for an aggregate purchase price of $430.3 million. Pending Acquisitions. As of December 31, 2000, the Company was a party to various agreements to acquire stations across 16 markets for an aggregate purchase price of approximately $186.6 million. Between January 1, 2001 and January 18, 2001, the Company closed on the acquisition of 7 properties in 2 markets representing $106.2 million in purchase price. These acquisitions were funded through the proceeds of asset exchanges (approximately $76.0 million) and asset sales (approximately $106.5 million), also completed between January 1, 2001 and March 16, 2001. We intend to fund the pending acquisitions, which are expected to approximate $80.4 million, with cash on hand, the proceeds of our Credit Facility or future credit facilities, and other to be identified sources. As of March 31, 2001, the Company believes it will need additional funding, above cash on hand, of approximately $40.0 million to complete the pending acquisitions. The ability of the Company to complete the pending acquisitions is dependent upon the Company's ability to obtain additional equity and/or debt financing. There can be no assurance that the Company will be able to obtain such financing. As of December 31, 2000, $31.9 million of escrow deposits were outstanding related to pending transactions. Subsequent to December 31, 2000, $13.2 million of those deposits were applied toward transactions that were completed. In the event that the Company is unable to obtain financing necessary to consummate the remaining pending acquisitions, the Company could be liable for approximately $18.7 million in purchase price. We expect to consummate most of our pending acquisitions during the second, third and fourth quarters of 2001, although there can be no assurance that the transactions will be consummated within that time frame. In three of the markets in which there are pending acquisitions petitions to deny have been filed against the Company's FCC assignment applications. All such petitions and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. There can be no assurance that the pending acquisitions will be consummated. In addition, from time to time the Company completes acquisitions following the initial grant of an assignment application by the FCC staff but before such grant becomes a final order, and a petition to review such a grant may be filed. There can be no assurance that such grants may not ultimately be reversed by the FCC or an appellate court as a result of such petitions, which could result in the Company being required to divest the assets it has acquired. The ability of the Company to make future acquisitions in addition to the pending acquisitions is dependent upon on the Company's ability to obtain additional equity and/or debt financing. There can be no assurance that the Company will be able to obtain such financing. Dispositions. On March 5, 2000 the Company entered into an Asset Purchase Agreement (the "Phase 1 Purchase Agreement") with Capstar Radio Operating Company ("Capstar ROC") and Capstar TX Limited Partnership ("Capstar TX"), entities controlled by Clear Channel, to facilitate the acquisition and disposition of certain radio station assets. Also on March 5, 2000 Cumulus Media Inc. entered into an Asset Exchange Agreement (the "Phase 1 Exchange Agreement") with Capstar ROC and Capstar TX pursuant to which the parties agreed to exchange the Clear Channel Station Assets (defined therein) and the Exchange Party Station Assets (defined therein). The parties intended the transaction contemplated by this Exchange Agreement to be a like-kind exchange in accordance with the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). 3 On June 5, 2000 the parties to the Phase 1 Purchase Agreement and the Phase 1 Exchange Agreement entered into an Amendment (the "First Amendment") in which the Exchange Agreement and the Phase 1 Purchase Agreement were amended to, among other things, 1) modify the radio station assets to be included in the Phase 1 Exchange Agreement; and 2) modify the 30 31 purchase price under the Phase 1 Purchase Agreement and the cash amount under the Phase 1 Exchange Agreement. On July 17, 2000 the parties to the Phase 1 Purchase Agreement and the Phase 1 Exchange Agreement entered into a Second Amendment (the "Second Amendment") whereby the Phase 1 Exchange Agreement and the Phase 1 Purchase Agreement were amended to, among other things, 1) further modify the radio station assets to be included in the Phase 1 Exchange Agreement; and 2) further modify the purchase price under the Phase 1 Purchase Agreement and the cash amount under the Phase 1 Exchange Agreement. The Phase 1 Purchase Agreement and the Phase I Exchange Agreement, as amended, will hereafter be referred to as the "Phase 1 Clear Channel Agreements". The transactions contemplated by the Phase 1 Clear Channel Agreements were consummated on August 25, 2000, whereby the Company transferred 25 stations in 5 markets to Clear Channel in exchange for 8 stations in 3 markets plus $91.5 million of cash proceeds. On September 6, 2000, Cumulus Media Inc. entered into an Asset Purchase Agreement (the "Phase 2 Asset Purchase Agreement") with Clear Channel Broadcasting, Inc. ("Clear Channel Broadcasting") and Clear Channel Broadcasting Licenses, Inc. ("Clear Channel Licenses"), entities controlled by Clear Channel. On September 30, 2000, Cumulus Media Inc. entered into an amendment to the Phase 2 Asset Purchase Agreement (the "Phase 2 Amendment") with Clear Channel. Among other things, the Phase 2 Amendment i) specified the transfer of the Station Assets were as part of a like-kind exchange under Section 1031 of the Internal Revenue Code, and ii) set the closing date for October 2, 2000. The transactions contemplated by the Phase 2 Asset Purchase Agreement were consummated on October 2, 2000, whereby the Company sold 28 stations in 5 markets for $68.9 million of initial cash proceeds. Upon receipt of regulatory approval for 6 of the stations being sold, the Company will receive an additional $6.0 million of cash proceeds. On October 2, 2000, Cumulus Media Inc. entered into a Tangible Property Purchase Agreement (the "Phase 3 Tangible Property Purchase Agreement") with Capstar ROC. The transactions contemplated by the Phase 3 Tangible Property Purchase Agreement were consummated on October 2, 2000, whereby the Company sold the tangible assets associated with 44 stations in 8 markets to Clear Channel in exchange for cash proceeds of $15.0 million. On October 2, 2000, Cumulus Media Inc. entered into an Asset Exchange Agreement (the "Phase 3 Asset Exchange Agreement") with Capstar ROC and Capstar TX. Sources of Liquidity. We have financed our acquisitions primarily through cash on hand and the proceeds from the asset divestitures mentioned above. On August 31, 1999, the Company's $190.0 Credit Facility was amended and restated to provide for aggregate principal commitments of $225.0 million. The amended Credit Facility consisted of an eight-year term loan facility of $75.0 million, an eight and one-half year term loan facility of $50.0 million, a seven-year revolving credit facility of $50.0 million and a revolving credit facility of $50.0 million that would convert to a seven-year term loan, at the option of the Company, 364 days from closing. The amount available under the seven-year revolving credit facility will be automatically reduced by 5% of the initial aggregate principal amount in each of the third and fourth years following closing, 10% of the initial aggregate principal amount in the fifth year following closing, 20% of the initial aggregate principal amount in the sixth year following the closing and the remaining 60% of the initial aggregate principal amount in the seventh year following closing. Under the terms of the Credit Facility, the Company drew down $125.0 million of the term loan facility on August 31, 1999, a portion of which was used to satisfy the principal amount of indebtedness on its preexisting credit facility with the same lender. On January 13, 2000, the Company entered into the First Amendment to the Credit Facility, which among other things, modified the limitation on investments provision in the pre-existing Credit Facility to allow loans by the Company to officers of the Company (or their affiliates) in an amount not to exceed $10.0 million, the proceeds of which were used to enable two executive officers to purchase newly issued of Class C Common Stock. 31 32 On March 10, 2000 the Company entered into the Second Amendment to the Credit Facility, which among other things, modified the commitments available related to letters of credit by increasing the amount from $25.0 million to $50.0 million in the Credit Facility to allow the Company to issue additional letters of credit in lieu of making escrow deposits in cash for pending acquisitions. On April 12, 2000 the Company received a waiver from its lenders that waived any defaults or events of default arising under the Credit Facility arising from the requirement that the annual financial statements for 1998 previously furnished to the lenders, and the quarterly financial statements for the third and fourth quarters of 1998 and the first, second and third fiscal quarters of fiscal 1999 previously furnished to the Lenders be complete and accurate and all material respects and be prepared in accordance with Generally Accepted Accounting Principles ("GAAP") applied consistently throughout the periods reflected therein. The waiver resulted from the Company's restatement of its income tax benefit and deferred tax liabilities for the periods referenced above. On July 25, 2000, the Company received a waiver from its lenders that, among other things, 1) waived certain requirements related to acquisitions in the Credit Facility to the extent necessary to complete the acquisition of radio broadcast assets from Clear Channel Communications as provided in the Asset Exchange and Sale Agreements referenced above; and 2) waived the requirements of the Credit Facility to the extent necessary to permit the asset sales and exchanges with Clear Channel Communications referenced above; and 3) waived the requirements of the Credit Facility to the extent necessary to permit investments made prior to July 21, 2000 by the Company or any of its subsidiaries in an aggregate amount up to $58.7 million in connection with the proposed acquisition by the Cumulus subsidiaries of certain radio broadcast assets to the extent such investments would not otherwise be permitted by the Credit Facility. The waiver also modified the interest coverage ratio requirement for the four consecutive fiscal quarters ending June 30, 2000 to a ratio of no less than 1.50 to 1.00 and waived any default or event of default arising from any non-compliance with the interest coverage ratio that may have occurred as of June 30, 2000. Finally, the waiver required $91.5 million of proceeds from the Asset Exchange and Sale Agreements with Clear Channel be placed in escrow pursuant to an escrow agreement. On August 29, 2000 the Company's ability to borrow under a $50.0 million revolving credit facility that would convert to a seven-year term loan expired in accordance with the terms of the Credit Facility. The Company did not seek reinstatement of this facility. On September 27, 2000, the Company and its lenders under the Credit Facility entered into the Third Amendment, Consent and Waiver to the Amended and Restated Credit Agreement dated as of August 31, 1999 (the "Third Amendment"). The Third Amendment allows the Company to complete the second and third phases of the asset exchange and sale with Clear Channel Communications, the acquisitions of radio station assets from Connoisseur Communications Partners, L.P., Cape Fear Broadcasting and McDonald Media Inc. subject to the satisfaction of renegotiated financial covenants. The Third Amendment also modified the financial covenant requirements, including the consolidated leverage ratio, the consolidated senior debt ratio, the consolidated interest coverage ratio, and the consolidated fixed charge coverage ratio commencing with the trailing four quarterly periods ended September 30, 2000. In addition to modifying certain financial covenants, the methodology for the calculation of these covenants was also modified. In consideration for entering into the Third Amendment, the Company paid the administrative agent a fee in the amount of $0.9 million and paid the lenders a fee of $0.8 million. In addition, the applicable maximum Eurodollar Loan margin on Revolving Credit Loans was increased from 3.00% to 3.25%; the applicable maximum Eurodollar Loan margin on Term Loan B Loans was increased from 3.000% to 3.375%; and the applicable maximum Eurodollar Loan margin on Term Loan C Loans was increased from 3.125% to 3.50%. A copy of the Third Amendment was filed with the Securities and Exchange Commission as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. The Company's obligations under its Credit Facility are collateralized by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries), including, without limitation, intellectual property, real property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries, except the capital stock of Broadcast Software International, Inc. ("BSI") and 32 33 65% of the capital stock of any first-tier foreign subsidiary. The obligations under the Credit Facility are also guaranteed by each of the direct and indirect domestic subsidiaries, except BSI and are required to be guaranteed by any additional subsidiaries acquired by Cumulus. Both the revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of our credit facility, 9.5% as of December 31, 2000) plus a margin ranging between 0.50% to 2.125%, or the Eurodollar Rate (as defined under the terms of the credit facility, 7.02% as of December 31, 2000) plus a margin ranging between 1.50% to 3.125% (in each case dependent upon the leverage ratio of the Company). At December 31, 2000 the Company's effective interest rate on term loan amounts outstanding under the Credit Facility was 10.1%. A commitment fee calculated at a rate ranging from 0.375% to 0.75% per annum (depending upon the Company's utilization rate) of the average daily amount available under the revolving lines of credit is payable quarterly in arrears, and fees in respect of letters of credit issued under the Credit Facility equal to the interest rate margin then applicable to Eurodollar Rate loans under the seven-year revolving credit facility also will be payable quarterly in arrears. In addition, a fronting fee of 0.125% is payable quarterly to the issuing bank. The eight-year term loan borrowings are repayable in quarterly installments beginning in the fourth quarter of 2001. The scheduled annual amortization is $0.8 million for each of the third, fourth, fifth, sixth and seventh years following closing and $71.3 million in the eighth year following closing. The eight and a half year term loan is repayable in two equal installments on November 30, 2007 and February 28, 2008. The amount available under the seven-year revolving credit facility will be automatically reduced in quarterly installments as described in the Credit Agreement. Certain mandatory prepayments of the term loan facility and the revolving credit line and reductions in the availability of the revolving credit line are required to be made including: (i) 100% of the net proceeds from any issuance of capital stock or incurrence of indebtedness; (ii) 100% of the net proceeds from certain asset sales; and (iii) between 50% and 75% (dependent on our leverage ratio) of our excess cash flow. Under the terms of the Credit Facility, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. At December 31, 2000, the Company was in compliance with such financial and operating covenants. On April 12, 2000, July 25, 2000 and September 27, 2000 the Company received the waivers or amendments of certain requirements of the Credit Facility as described in detail above. The terms of the Credit Facility contain events of default after expiration of applicable grace periods, including failure to make payments on the Credit Facility, breach of covenants, breach of representations and warranties, invalidity of the agreement governing the credit facility and related documents, cross default under other agreements or conditions relating to indebtedness of Cumulus or the Company's restricted subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the Credit Facility, the majority of the lenders are able to declare all amounts under our Credit Facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under each term loan facility and the majority of the banks under each revolving credit facility may terminate such term loan facility and such revolving credit facility, respectively, upon an event of default. The Indenture and the Certificates of Designation limit the amount we may borrow without regard to the other limitations on incurrence of indebtedness contained therein under credit facilities to $150.0 million. As of December 31, 2000, we would be permitted, by the terms of the Indenture and the Certificates of Designation, to incur approximately $25.0 million of additional indebtedness under our credit facility without regard to the debt ratios included in our indenture. 33 34 We have issued $160.0 million in aggregate principal amount of our Notes. The Notes are general unsecured obligations and are subordinated in right of payment to all our existing and future senior debt (including obligations under our credit facility). Interest on the Notes is payable semi-annually in arrears. We issued $125.0 million of our Series A Preferred Stock in our initial public offerings on July 1, 1998. The holders of the Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to 13 3/4% of the liquidation preference per share of Series A Preferred Stock, payable quarterly, in arrears. On or before July 1, 2003, we may, at our option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock. From July 1, 1998 until December 31, 2000, we issued an additional $37.9 million of shares of Series A Preferred Stock as dividends on the Series A Preferred Stock. After July 1, 2003, dividends may only be paid in cash. To date, all of the dividends on the Series A Preferred Stock have been paid in shares, except for a $3.5 million cash dividend paid on January 1, 2000 to holders of record on December 15, 1999 for the period commencing October 1, 1999 and ending December 31, 1999. On October 1, 1999, the Company redeemed 43,750 shares of its Series A Preferred Stock for $51.3 million, including redemption premium of $6.0 million and accrued but unpaid dividends of $1.5 million. The shares of Series A Preferred Stock are subject to mandatory redemption on July 1, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends. We issued 250 shares of our Series B Preferred Stock on October 2, 2000 for $2.5 million. The holders of the Series B Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to 12% of the liquidation preference per share of Series B Preferred Stock, payable quarterly, in arrears commencing on January 1, 2001. The Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series B Preferred Stock. The shares of Series B Preferred Stock may be converted, at the holder's discretion, on or after March 30, 2002 into Class B Common Stock at the then effective conversion rate. The number of shares of Class B Common Stock that will be issued upon conversion can be calculated by dividing the liquidation preference of one share of Series B Preferred Stock by the lower of the closing sales price of the Company's Class A Common Stock as reported by the NASDAQ Stock Market on the conversion date or the average of the closing sales prices of the Company's Class A Common Stock as reported by the NASDAQ Stock Market for the twenty (20) day trading period prior to the conversion date. The shares of Series B Preferred Stock are subject to mandatory redemption on October 3, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends. The shares of Series B Preferred Stock can be redeemed at any time at the Company's discretion with notice of not less than 30 days nor more than 60 days prior to the date of redemption. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. Statement 133 is amended by Statement 137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. Management does not believe adoption of this statement will materially impact the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), which summarizes the views of the Commission staff in applying generally accepted accounting principles to revenue recognition in financial statements. The Company's revenue recognition principles are consistent with the guidance set forth in SAB 101, which the Company adopted on July 1, 2000. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25" ("FIN 44"). This Interpretation clarifies issues relating to stock compensation. FIN 44 is effective July 1, 2000; however, certain 34 35 conclusions in this Interpretation cover specific events that occurred prior to July 1, 2000. The adoption of this interpretation on July 1, 2000 does not have any impact on the Company's historical financial statements. SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 about us. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in this document, the words "anticipates," "believes," "expects," "intends," and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control, include: - the impact of general economic conditions in the U.S. and in other countries in which we currently do business; - industry conditions, including competition; - fluctuations in exchange rates and currency values; - capital expenditure requirements; - legislative or regulatory requirements; - interest rates; - taxes; and - access to capital markets. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on us. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK At December 31, 2000, approximately 44% of the Company's long-term debt bears interest at variable rates. Accordingly, the Company's earnings and after tax cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a one percentage point change in the 2000 average interest rate under these borrowings, it is estimated that the Company's 2000 interest expense and net income would have changed by $1.3 million. In the event of an adverse change in interest rates, management would likely take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, additional analysis is not possible at this time. Further, such analysis would not consider the effects of the change in the level of overall economic activity that could exist in such an environment. FOREIGN CURRENCY As a result of the 1997 acquisition of Caribbean Communications Company Ltd., ("CCC"), the Company has operations in 5 countries throughout the English-speaking Eastern Caribbean. All foreign operations are measured in their local currencies. As a result, the Company's financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company has operations. 35 36 The Company maintains no derivative instruments to mitigate the exposure to translation and/or transaction risk. However, this does not preclude the adoption of specific hedging strategies in the future. Our foreign operations generated a net loss of $0.4 million for the year ended December 31, 2000. It is estimated that a 5% change in the value of the U.S. dollar to the Eastern Caribbean dollar or the Trinidad and Tobago dollar would change net income for the year ended December 31, 2000 by an amount less than $0.1 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information in response to this item is included in the Company's consolidated financial statements, together with the report thereon of KPMG LLP, appearing on pages F-1 through F-32 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item with respect to directors is incorporated by reference to the information set forth under the caption "Members of the Board of Directors" in our Definitive Proxy Statement, expected to be filed within 120 days of our fiscal year end. The required information regarding executive officers of the Company is contained in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information set forth under the caption "Executive Compensation" in our Definitive Proxy Statement, expected to be filed within 120 days of our fiscal year end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT The information required by this item is incorporate by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in our Definitive Proxy Statement, expected to be filed within 120 days of our fiscal year end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the information set forth under the caption "Certain Relationships and Related Transactions" in our Definitive Proxy Statement, expected to be filed within 120 days of our fiscal year end. 36 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Index to Financial Statements Reports of Independent Accountants 2. Financial Statements and Financial Statement Schedule 3. The Financial Statements and Financial Statement Schedule listed in the index to the Consolidated Financial Statements of Cumulus Media Inc. that appear on page F1 of this Report on Form 10-K are filed as a part of this report. Exhibits 4. The exhibits to this Report on Form 10-K are listed under item 14(c) below. (b) Reports on Form 8-K:
(1) Current Report on Form 8-K, filed with the SEC on October 17, 2000, reporting, under item 2, the completion of the acquisition of 35 stations in 9 markets from Connoisseur Communications Partners, L.P., Continuity Partners, L.P., Connoisseur Communications of Flint, L.P., Connoisseur Communications of Mercer County, L.P., Connoisseur Communications of Muskegon, L.P., Connoisseur Communications of Rockford, L.P., Connoisseur Communications of Saginaw, L.P., Connoisseur Communications of Waterloo, L.P., Connoisseur Communications of Youngstown, L.P. and Abry Broadcast Partners III, L.P. (2) Amendment No. 1 to Current Report on Form 8-K, filed on December 20, 2000, amending, under Item 5, the Form 8-K filed on October 17, 2000, to include the following financial statements: (A) Connoisseur Communications Partners, L.P. Report of Independent Accountants Financial Statements: Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 Consolidated Statements of Operations for the nine months ended September 30, 2000 (unaudited) and 1999 (unaudited) and for the year ended December 31, 1999 Consolidated Statements of Partners' Capital for the nine months ended September 30, 2000 (unaudited) and 1999 (unaudited) and for the year ended December 31, 1999 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 (unaudited) and 1999 (unaudited) and for the year ended December 31, 1999 Notes to Consolidated Financial Statements (B) Pro Forma Financial Information Cumulus Media Inc. Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 1999 Cumulus Media Inc. Unaudited Pro Forma Statement of Operations for the Nine Months Ended September 30, 2000 Cumulus Media Inc. Unaudited Pro Forma Balance Sheet as of September 30, 2000 (3) Current Report on Form 8-K, filed with the SEC on February 2, 2001, reporting, under Item 2 and 5, the completion of substantially all of the third phase and final phase of an asset exchange and sale transaction with Clear Channel Communications (NYSE: CCU) and its subsidiaries and related executed agreements. The following financial statements were included with the February 2, 2001 filing: (A) Pro forma Financial Information Cumulus Media Inc. Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 1999. 37 38 Cumulus Media Inc. Unaudited Pro Forma Statement of Operations for the Nine Months Ended September 30, 2000. Cumulus Media Inc. Unaudited Pro Forma Balance Sheet as of September 30, 2000. (c) Exhibits:
NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.1 Local Programming and Marketing Agreement dated December 17, 1997 between Cumulus Broadcasting, Inc. and New Frontier Communications, Inc. (incorporated herein by reference to Exhibit 2.1 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.2 Local Programming and Marketing Agreement dated January 1, 1998 between Cumulus Broadcasting, Inc. and Westwind Broadcasting, Inc. (incorporated herein by reference to Exhibit 2.2 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.3 Local Marketing Agreement dated February 10, 1998 between Cumulus Broadcasting, Inc. and Wiskes/Abaris Communications KQIZ Partnership. (incorporated herein by reference to Exhibit 2.3 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.4 Time Brokerage Agreement dated December 15, 1997 between Cumulus Broadcasting, Inc. and Clearly Superior Radio, LLC. (incorporated herein by reference to Exhibit 2.4 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.5 Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Lyle Evans d/b/a Brillion Radio Company. (incorporated herein by reference to Exhibit 2.5 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.6 Program Service and Time Brokerage Agreement dated October 31, 1997 between Cumulus Broadcasting, Inc. and Tallahassee Broadcasting Company. (incorporated herein by reference to Exhibit 2.6 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.7 Local Marketing Agreement dated January 14, 1998 between Cumulus Broadcasting, Inc. and Savannah Communications LP. (incorporated herein by reference to Exhibit 2.7 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.8 Local Programming and Marketing Agreement dated December 23, 1997 between Cumulus Broadcasting, Inc. and Lewis Broadcasting Corporation. (incorporated herein by reference to Exhibit 2.8 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.9 Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Jon A. LeDuc. (incorporated herein by reference to Exhibit 2.9 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.10 Program Services and Time Brokerage Agreement dated February 12, 1998 between Cumulus Broadcasting, Inc. and Pamplico Broadcasting, LP. (incorporated herein by reference to Exhibit 2.10 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
38 39
NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.11 Asset Purchase Agreement dated December 1, 1997 among Cumulus Broadcasting, Inc., Cumulus licensing Corporation and West Jewell Management, Inc. (incorporated herein by reference to Exhibit 2.11 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.12 Asset Purchase Agreement dated October 30, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and KIKR Inc. (incorporated herein by reference to Exhibit 2.12 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.13 Asset Purchase Agreement dated December 5, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Wiskes/Abaris Communications KQIZ Partnership (incorporated herein by reference to Exhibit 2.13 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.14 Asset Purchase Agreement dated January 30, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Pacific Broadcasting of Beaumont, Inc., Beaumont Skyware Inc., and Richard Dames. (incorporated herein by reference to Exhibit 2.14 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.15 Asset Purchase Agreement dated December 30, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Sovereign Communications Corporation. (incorporated herein by reference to Exhibit 2.15 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.16 Asset Purchase Agreement dated December 19, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Tryon-Seacoast Communications, Inc., Seacoast Broadcasting, Inc., and Kennebec-Tryon Communications Corp. (incorporated herein by reference to Exhibit 2.16 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.17 Asset Purchase Agreement dated February 18, 1998 among Cumulus Broadcasting, Inc. Cumulus Licensing Corporation, and George H. Buck, Jr. d/b/a WHSC Radio. (incorporated herein by reference to Exhibit 2.17 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.18 Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Pamplico Broadcasting, LP. (incorporated herein by reference to Exhibit 2.18 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.19 Asset Purchase Agreement dated October 8, 1997 among Cumulus Broadcasting Inc., Cumulus Licensing Corporation, Connor FM Broadcasting Co., Connor Broadcasting Corp., J. Parker Connor and Susan C. Connor. (incorporated herein by reference to Exhibit 2.19 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.20 Stock Purchase Agreement dated December 17, 1997 among Cumulus Holdings, Inc., Tommy R. Vascocu, Elizabeth L. Young, Michael L. Owens, Alan Owens, Robert Podolsky, Larry Daniels, Sonja Erskine, and Jeffrey D. Erskine. (incorporated herein by reference to Exhibit 2.20 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.21 Stock Purchase Agreement dated February 17, 1998 among Cumulus Holdings, Inc. and John M. Borders, Don L. Turner, Jerry Goos and Kan-D Land, Inc. (incorporated herein by reference to Exhibit 2.21 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
39 40
NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.22 Asset Purchase Agreement dated December 15, 1997 among Cumulus Broadcasting Inc., Cumulus Licensing Corporation, Clearly Superior Radio, L.L.C., 3-D Communications Corporation and Dennis F. Doelitzsch. (incorporated herein by reference to Exhibit 2.22 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.23 Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Lyle R. Evans d/b/a Brillion Radio Company. (incorporated herein by reference to Exhibit 2.23 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.24 Asset Purchase Agreement dated January 14, 1998 among Cumulus Broadcasting Inc., Cumulus Licensing Corporation and Savannah Communications, LP. (incorporated herein by reference to Exhibit 2.24 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.25 Asset Purchase Agreement dated December 23, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Lewis Broadcasting Corporation. (incorporated herein by reference to Exhibit 2.25 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.26 Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Jon A. LeDuc and American Communications Company, Inc. (incorporated herein by reference to Exhibit 2.26 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.27 Asset Purchase Agreement dated January 27, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Lesnick Communications, Inc. and Mrs. Betty Carey. (incorporated herein by reference to Exhibit 2.27 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.28 Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Big Country Broadcasting, Inc., and Tye Broadcasting, Inc. (incorporated herein by reference to Exhibit 2.28 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.29 Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Arbor Radio, LP. (incorporated herein by reference to Exhibit 2.29 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.30 Asset Purchase Agreement dated March 5, 1997 between Wilks Broadcasting Acquisitions, Inc. and Cumulus Media, LLC. (incorporated herein by reference to Exhibit 2.30 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.31 Asset Purchase Agreement dated August 15, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and M & M Partners. (incorporated herein by reference to Exhibit 2.31 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.32 Stock Purchase Agreement dated October 16, 1997 between Cumulus Holdings, Inc. and Philip T. Kelly. (incorporated herein by reference to Exhibit 2.32 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
40 41
NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.33 Stock Purchase Agreement dated November 7, 1997 between Cumulus Holdings, Inc. and James Maurer. (incorporated herein by reference to Exhibit 2.33 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.34 Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Carolina Broadcasting, Inc., and Georgetown Radio, Inc. (incorporated herein by reference to Exhibit 2.34 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.35 Asset Purchase Agreement dated October 9, 1997 among Seacoast Radio Company, LLC., Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation. (incorporated herein by reference to Exhibit 2.35 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.36 Asset Purchase Agreement dated October 9, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Sunny Broadcasters, Inc. (incorporated herein by reference to Exhibit 2.36 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.37 Asset Purchase Agreement dated June 26, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Venice Michel and Venice Broadcasting Corporation. (incorporated herein by reference to Exhibit 2.37 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.38 Agreement of Sale dated September 4, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Medical College of Georgia Foundation. (incorporated herein by reference to Exhibit 2.38 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.39 Program Service and Time Brokerage Agreement dated August 18, 1997 between Cumulus Broadcasting, Inc. and Tally Radio, LLC. (incorporated herein by reference to Exhibit 2.39 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.40 Asset Purchase Agreement dated August 18, 1997 among Tally Radio, LLC and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation. (incorporated herein by reference to Exhibit 2.40 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.41 Asset Purchase Agreement dated August 18, 1997 among HVS Partners and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation. (incorporated herein by reference to Exhibit 2.41 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.42 Asset Purchase Agreement dated August 25, 1997 among HVS Partners and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation. (incorporated herein by reference to Exhibit 2.42 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.43 Letter Agreement dated January 16, 1998 between Benchmark Radio Acquisition Fund IV Limited Partnership, Cumulus Broadcasting, Inc. and Cumulus Licensing Corp. (incorporated herein by reference to Exhibit 2.43 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.44 WZNY Agreement of Sale dated September 4, 1997 among George G. Weiss and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation. (incorporated herein by reference to Exhibit 2.44 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
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NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.45 Asset Purchase Agreement dated May 1, 1997 between HVS Partners and Cumulus Media, LLC. (incorporated herein by reference to Exhibit 2.45 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.46 Asset Purchase Agreement dated April 30, 1997 among Hara Broadcasting, Inc. and DLM Communications, Inc. and Cumulus Media, LLC. (incorporated herein by reference to Exhibit 2.46 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.47 Asset Purchase Agreement dated June 24, 1997 among 62nd Street Broadcasting of Toledo, LLC, 62nd Street Broadcasting of Toledo License, LLC, 62nd Street Broadcasting, LLC, Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation. (incorporated herein by reference to Exhibit 2.47 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.48 Local Marketing Agreement dated February 15, 1998 among Cumulus Broadcasting, Inc., Pacific Broadcasting of Beaumont, Inc., and Beaumont Skyware Inc. (incorporated herein by reference to Exhibit 2.48 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.49 Local Marketing Agreement dated December 31, 1997 between Cumulus Broadcasting, Inc. and Sovereign Communications Corporation and Madison Radio Group Inc. (incorporated herein by reference to Exhibit 2.49 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.50 Asset Purchase Agreement dated March 23, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Communications Corporation. (incorporated herein by reference to Exhibit 2.50 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.51 Purchase Agreement dated November 20, 1996 between IQ Radio, Inc. and Taylor Country Broadcasting, Inc. (incorporated herein by reference to Exhibit 2.51 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.52 Assignment and Assumption Agreement dated January 20, 1998 among Taylor Country Broadcasting, Inc., Cumulus Licensing Corp. and Cumulus Broadcasting, Inc. (incorporated herein by reference to Exhibit 2.52 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.53 Asset Purchase Agreement dated January 2, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Westwind Broadcasting Inc. (incorporated herein by reference to Exhibit 2.53 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.54 Asset Purchase Agreement dated March 16, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and P and T Broadcasting, Inc. (incorporated herein by reference to Exhibit 2.54 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.55 Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Crystal Radio Group, Inc. (incorporated herein by reference to Exhibit 2.55 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
42 43
NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.56 Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Ocmulgee Broadcasting Co., Inc. (incorporated herein by reference to Exhibit 2.56 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.57 Local Marketing Agreement dated March 16, 1998 between Cumulus Broadcasting, Inc. and Phoenix Broadcast Partners, Inc. (incorporated herein by reference to Exhibit 2.57 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.58 Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio Corporation (WVBO-FM/WOSH-FM/WOGB-FM). (incorporated herein by reference to Exhibit 2.58 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.59 Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio Corporation (WUSW-FM/WNAM-AM). (incorporated herein by reference to Exhibit 2.59 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.60 Asset Purchase Agreement dated February 26, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Mustang Broadcasting Company. (incorporated herein by reference to Exhibit 2.60 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.61 Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Robert Brooks d/b/a Brooks Broadcasting Company and K-Country, Inc. (incorporated herein by reference to Exhibit 2.61 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.62 Asset Purchase Agreement dated March 24, 1998 among WSEA, Inc., Cumulus Broadcasting, Inc., and Cumulus Licensing Corporation. (incorporated herein by reference to Exhibit 2.62 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.63 Asset Purchase Agreement dated March 30, 1998 among Cumulus Broadcasting Inc., Cumulus Licensing Corporation and Mountain Wireless, Inc. (incorporated herein by reference to Exhibit 2.63 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.64 Asset Purchase Agreement dated February 5, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Castle Broadcasting Limited Partnership. (incorporated herein by reference to Exhibit 2.64 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.65 Asset Purchase Agreement dated March 5, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Missouri River Broadcasting, Inc. and JKJ Broadcasting, Inc. (incorporated herein by reference to Exhibit 2.65 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.66 Asset Purchase Agreement dated March 11, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Clarendon Country Broadcasting, Co., Inc. (incorporated herein by reference to Exhibit 2.66 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
43 44
NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.67 Asset Purchase Agreement dated April 1998, among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Phoenix Broadcast Partners, Inc. (incorporated herein by reference to Exhibit 2.67 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.68 Stock Purchase Agreement dated January 9, 1998 between Cumulus Holdings, Inc. and Robert Lowder. (incorporated herein by reference to Exhibit 2.68 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.69 Asset Purchase Agreement dated February 19, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, James Ingstad Broadcasting, Inc., Hometown Wireless, Inc., Radio Iowa Broadcasting, Inc. and Ingstad Mankato, Inc. (incorporated herein by reference to Exhibit 2.69 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 2.70 Asset Purchase Agreement, dated as of April 2, 1998, by and between Cumulus Broadcasting Inc., Cumulus Licensing Corp., Cumulus Wireless Services, Inc. and Phillips Broadcasting Company (incorporated herein by reference to Exhibit 2.0 of the Company's Form 8-K, filed on November 2, 1999) 2.71 Asset Purchase Agreement, dated as of March 9, 1999, by and between Cumulus Broadcasting Inc., Cumulus Licensing Corp., Cumulus Wireless Services, Inc., HMH Broadcasting Inc., and HMH Realty, LLC (incorporated herein by reference to Exhibit 2.1 of the Company's Form 8-K, filed on November 2, 1999) 2.72 Stock Purchase Agreement, dated June 15, 1999, among Cumulus Media Inc., M&F Calendar Holdings, L.P., Kevin C. Whitman, Nassau Capital Partners, L.P., NAS Partners I L.L.C., and Philip J. Giordano (incorporated herein by reference to Exhibit 2.2 of the Company's Form 8-K, filed on November 2, 1999) 2.73 Asset Purchase Agreement, dated as of June 29, 1999, by and among Cumulus Broadcasting Inc., Cumulus Licensing Corp., and Coast Radio, L.L.C. (incorporated herein by reference to Exhibit 2.3 of the Company's Form 8-K, filed on November 2, 1999) 2.74 Asset Purchase Agreement, dated as of September 23, 1999, by and between Cumulus Broadcasting Inc., Cumulus Licensing Corp., Cumulus Wireless Services, Inc., C.F. Radio, Inc., Cape Fear Radio, LLC, Cape Fear Broadcasting Company and Cape Fear Tower Systems, LLC (incorporated herein by reference to Exhibit 2.4 of the Company's Form 8-K, filed on November 2, 1999) 2.75 Asset Purchase Agreement and Plan of Reorganization by and between Cumulus Media Inc., Broadcast Software International Inc. and Ron Burley, dated as of September 15, 1999 (incorporated herein by reference to Exhibit 2.1 of Amendment No. 1 to Form S-3, filed on November 4, 1999 (Commission File No. 333-89825)) 2.76 Option Agreement by and between Cumulus Broadcasting Inc., Cumulus Licensing Corp., Cumulus Wireless Services, Inc. Services Inc. and Green Bay Broadcasting Company, Inc., dated as of September 15, 1999 (incorporated herein by reference to Exhibit 2.2 of Amendment No. 1 to Form S-3, filed on November 4, 1999 ( Commission File No. 333-89825)) 2.77 Asset Purchase Agreement, dated as of November 29, 1999, by and among Cumulus Broadcasting Inc. and the Connoisseur Sellers (as defined therein) (incorporated herein by reference to Exhibit 2.1 to the Company's Form 8-K, filed on December 2, 1999) 2.78 Asset Purchase Agreement by and among Cumulus Broadcasting Inc., Cumulus Licensing Corp., Cumulus Wireless Services, Inc. Services Inc. and McDonald Media Group, Inc., with respect to the California Stations (incorporated herein by reference to Exhibit 2.2 to the Company's Form 8-K, filed on January 18, 2000)
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NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.79 Asset Purchase Agreement, dated as of December 17, 1999, by and among Cumulus Broadcasting Inc., Cumulus Licensing Corp., Cumulus Wireless Services, Inc. Services and McDonald Media Group, Inc., with respect to the Oregon Stations (incorporated herein by reference to Exhibit 2.3 to the Company's Form 8-K, filed on January 18, 2000) 2.80 Option Agreement, dated as of December 17, 1999, by and among Cumulus Broadcasting Inc., Cumulus Licensing Corp., Cumulus Wireless Services, Inc. Services Inc., and McDonald Media Group, Inc. with respect to the California Stations ((incorporated herein by reference to Exhibit 2.4 to the Company's Form 8-K, filed on January 18, 2000) 2.81 Asset Purchase Agreement by and between Cumulus Broadcasting Inc. and Cumulus Wireless Services, Inc. Services, Inc. and Star Radio Operating Company and Star TX Limited Partnership, dated March 5, 2000 (incorporated herein by reference to Exhibit 2.1 to the Company's Form 8-K, filed on February 2, 2001) 2.82 Asset Exchange Agreement by and between Cumulus Broadcasting Inc., Cumulus Wireless Services, Inc. Services Inc. and Cumulus Licensing Corp., and Star Radio Operating Company and Star TX Limited Partnership, dated March 5, 2000 (incorporated herein by reference to Exhibit 2.2 to the Company's Form 8-K, filed on February 2, 2001) 2.83 Amendment Agreement by and between Cumulus Broadcasting Inc., Cumulus Wireless Services, Inc. Services Inc. and Cumulus Licensing Corp., and Star Radio Operating Company and Star TX Limited Partnership, dated June 5, 2000 (incorporated herein by reference to Exhibit 2.4 to the Company's Form 8-K, filed on February 2, 2001) 2.84 Asset Purchase Agreement by and between Cumulus Broadcasting Inc., Cumulus Wireless Services, Inc. Services Inc. and Cumulus Licensing Corp., and Clear Channel Broadcasting Licenses, Inc., dated September 6, 2000 (incorporated herein by reference to Exhibit 2.5 to the Company's Form 8-K, filed on February 2, 2001) 2.85 Amendment Agreement by and between Cumulus Broadcasting Inc., Cumulus Wireless Services, Inc. Services Inc. and Cumulus Licensing Corp., and Clear Channel Broadcasting, Inc. and Clear Channel Broadcasting Licenses, Inc., dated September 30, 2000 (incorporated herein by reference to Exhibit 2.6 to the Company's Form 8-K, filed on February 2, 2001) 2.86 Tangible Property Purchase Agreement by and between Cumulus Broadcasting Inc., Cumulus Wireless Services, Inc. Services Inc., Cumulus Licensing Corp. and Star Radio Operating Company, dated October 2, 2000 (incorporated herein by reference to Exhibit 2.7 to the Company's Form 8-K, filed on February 2, 2001) 2.87 Asset Exchange Agreement by and between Cumulus Broadcasting Inc., Cumulus Wireless Services, Inc. Services Inc. and Cumulus Licensing Corp., and Star Radio Operating Company, and Star TX Limited Partnership, dated October 2, 2000 (incorporated herein by reference to Exhibit 2.8 to the Company's Form 8-K, filed on February 2, 2001) 2.88 Amendment Agreement by and between Cumulus Broadcasting Inc., Cumulus Wireless Services, Inc. Services Inc. and Cumulus Licensing Corp., and Star Radio Operating Company, and Star TX Limited Partnership, dated January 12, 2001 (incorporated herein by reference to Exhibit 2.9 to the Company's Form 8-K, filed on February 2, 2001) 3.1 Articles of Incorporation of Cumulus Media Inc. (incorporated herein by reference to Exhibit 3.1 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.2 Forum of Amended and Restated Articles of Incorporation of Cumulus Media Inc. (incorporated herein by reference to Exhibit 3.2 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.3 Bylaws of Cumulus Media Inc. (incorporated herein by reference to Exhibit 3.3 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
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NO. DESCRIPTION OF EXHIBIT --- ---------------------- 3.4 Form of Amended and Restated Bylaws of Cumulus Media Inc. (incorporated herein by reference to Exhibit 3.4 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.5 Form of Certificate of Designation with respect to Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009. (incorporated herein by reference to Exhibit 3.5 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.6 Articles of Incorporation of Forjay Broadcasting Corporation. (incorporated herein by reference to Exhibit 3.6 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.7 Bylaws of Forjay Broadcasting Corporation. (incorporated herein by reference to Exhibit 3.7 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.8 Articles of Incorporation of Minority Radio Associates, Inc. (incorporated herein by reference to Exhibit 3.8 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.9 Bylaws of Minority Radio Associates, Inc. (incorporated herein by reference to Exhibit 3.9 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.10 Memorandum of Association of GEM Radio Five Ltd. (incorporated herein by reference to Exhibit 3.10 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.11 Articles of Association of GEM Radio Five Ltd. (incorporated herein by reference to Exhibit 3.11 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.12 Memorandum of Association of Caribbean Communications Company Limited. (incorporated herein by reference to Exhibit 3.12 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.13 Articles of Association of Caribbean Communications Company Limited. (incorporated herein by reference to Exhibit 3.13 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.14 Articles of Incorporation of Forjay Licensing Corp. (incorporated herein by reference to Exhibit 3.14 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.15 Bylaws of Forjay Licensing Corp. (incorporated herein by reference to Exhibit 3.15 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.16 Articles of Incorporation of MRA Licensing Corp. (incorporated herein by reference to Exhibit 3.16 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.17 Bylaws of MRA Licensing Corp. (incorporated herein by reference to Exhibit 3.17 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.18 Articles of Incorporation of Cumulus Broadcasting, Inc. (incorporated herein by reference to Exhibit 3.18 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
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NO. DESCRIPTION OF EXHIBIT --- ---------------------- 3.19 Bylaws of Cumulus Broadcasting, Inc. (incorporated herein by reference to Exhibit 3.19 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.20 Articles of Incorporation of Cumulus Licensing Corp. (incorporated herein by reference to Exhibit 3.20 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.21 Bylaws of Cumulus Licensing Corp. (incorporated herein by reference to Exhibit 3.21 Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.22 Form of Class A Common Stock Certificate. (incorporated herein by reference to Exhibit 4.1 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 3.23 Form of Series A Preferred Stock Certificate. (incorporated herein by reference to Exhibit 4.2 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.1 Credit Facility dated March 2, 1998 among Cumulus Media Inc., Lehman Brothers Inc. and Lehman Commercial Paper Inc. (incorporated herein by reference to Exhibit 10.1 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.2 First Amendment, dated May 1, 1998, to the Credit Facility among Cumulus Media Inc., Lehman Brothers Inc. and Lehman Commercial Paper. (incorporated herein by reference to Exhibit 10.2 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.3 Second Amendment dated June 24, 1998, to the Credit Facility among Cumulus Media Inc., Lehman Brothers Inc. and Lehman Commercial Paper. (incorporated herein by reference to Exhibit 10.3 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.4 Form of Indenture dated July 1, 1998 between Cumulus Media Inc. and Firstar Bank of Minnesota, N.A., as Trustee (incorporated herein by reference to Exhibit 10.4 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.5 Form of Exchange Debenture Indenture, dated July 1, 1998 between Cumulus Media Inc. and U.S. Bank Trust National Association, as Trustee (incorporated herein by reference to Exhibit 10.5 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.6 Form of Employment Agreement between Cumulus Media Inc. and Richard W. Weening (incorporated herein by reference to Exhibit 10.6 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.7 Form of Employment Agreement between Cumulus Media Inc. and Lewis W. Dickey, Jr. (incorporated herein by reference to Exhibit 10.7 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.8 Employment Agreement between Cumulus Media Inc. and William M. Bungeroth (incorporated herein by reference to Exhibit 10.8 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849))
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NO. DESCRIPTION OF EXHIBIT --- ---------------------- 10.9 Employment Agreement between Cumulus Media Inc. and Richard J. Bonick, Jr. (incorporated herein by reference to Exhibit 10.9 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.10 Form of Cumulus Media Inc. 1998 Employee Stock Incentive Plan (incorporated herein by reference to Exhibit 10.10 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.11 Form of Cumulus Media Inc. 1998 Executive Stock Incentive Plan (incorporated herein by reference to Exhibit 10.11 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.12 Services Agreement dated May 1, 1998 by and between QUAESTUS Management Corporation and Cumulus Media Inc. (incorporated herein by reference to Exhibit 10.12 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.13 Services Agreement dated March 23, 1998 between Stratford Research, Inc. and Cumulus Media Inc. (incorporated herein by reference to Exhibit 10.13 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 10.14 Amended and Restated Credit Agreement among Cumulus Media Inc., Lehman Brothers Inc., Barclays Capital and Lehman Commercial Paper Inc., dated August 31, 1999 (incorporated herein by reference to Exhibit 10.1 to Amendment No. 1 to Form S-3, filed on November 4, 1999 (Commission File No. 333-89825)) 10.15 Cumulus Media Inc. 1999 Employee Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to Amendment No. 1 to Form S-3, filed on November 4, 1999 (Commission File No. 33-89825)) 10.16 Cumulus Media Inc. 1999 Executive Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to Amendment No. 1 to Form S-3, filed on November 4, 1999 (Commission File No. 33-89825)) 10.17 Third Amendment, Consent and Waiver, dated as of September 27, 2000, to the Amended and Restated Credit Agreement among Cumulus Media Inc., Lehman Brothers Inc., Barclays Capital and Lehman Commercial Paper Inc. (incorporated herein by reference to Exhibit 10.1 to Form 10-Q/A for the period ended September 30, 2000, filed on March 28, 2001) 21.1 Subsidiaries of the Company (incorporated herein by reference to Exhibit 21.1 of Form S-1 Registration Statement previously filed on June 25, 1998 and declared effective on June 26, 1998 (Commission File No. 333-48849)) 23.1* Consent of KPMG LLP 23.2* Consent of PricewaterhouseCoopers LLP
- ------------------------- * Filed herewith 48 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 2nd day of April 2001. CUMULUS MEDIA INC. By /s/ MARTIN GAUSVIK ------------------------------------ Martin Gausvik Executive Vice President, Treasurer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ LEWIS W. DICKEY, JR. Chairman, President, Chief Executive April 2, 2001 - ------------------------------------------ Officer and Director, (Principal Lewis W. Dickey, Jr. Executive Officer) /s/ MARTIN GAUSVIK Executive Vice President and Chief April 2, 2001 - ------------------------------------------ Financial Officer (Principal Financial Martin Gausvik and Accounting Officer) /s/ RALPH B. EVERETT Director April 2, 2001 - ------------------------------------------ Ralph B. Everett /s/ ERIC P. ROBISON Director April 2, 2001 - ------------------------------------------ Eric P. Robison /s/ ROBERT H. SHERIDAN, III Director April 2, 2001 - ------------------------------------------ Robert H. Sheridan, III /s/ RICHARD W. WEENING Director April 2, 2001 - ------------------------------------------ Richard W. Weening
49 50 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The following Consolidated Financial Statements of Cumulus Media Inc. are included in Item 8:
PAGE IN THIS REPORT ------------ (1) Financial Statements Reports of Independent Accountants.......................... F-3 Consolidated Balance Sheets at December 31, 2000 and 1999... F-4 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.......................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1999 and 2000.............. F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... F-7 Notes to Consolidated Financial Statements.................. F-8 (2) Financial Statement Schedule Schedule II: Valuation and Qualifying Accounts.............. F-32
F-1 51 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND STOCKHOLDERS CUMULUS MEDIA INC.: We have audited the accompanying consolidated balance sheet of Cumulus Media Inc. and subsidiaries as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. In connection with our audit of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cumulus Media Inc. and subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Chicago, Illinois March 14, 2001 F-2 52 REPORT OF INDEPENDENT ACCOUNTANTS TO THE STOCKHOLDERS OF CUMULUS MEDIA INC.: In our opinion, the consolidated financial statements listed in the index on page F-1 present fairly, in all material respects, the financial position of Cumulus Media Inc. and subsidiaries at December 31, 1999, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index on page F-1 presents fairly, in all material respects, the information set forth therein related to the two year period ended December 31, 1999 when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Cumulus Media Inc. for any period subsequent to December 31, 1999. /s/ PricewaterhouseCoopers LLP Chicago, Illinois April 13, 2000 F-3 53 CUMULUS MEDIA INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
2000 1999 ---- ---- Assets Current assets: Cash and cash equivalents................................. $ 10,979 $219,581 Accounts receivable, less allowance for doubtful accounts of $17,348 and $3,118 respectively..................... 43,498 53,521 Prepaid expenses and other current assets................. 9,536 8,351 -------- -------- Total current assets................................... 64,013 281,453 Property and equipment, net................................. 79,829 66,963 Intangible assets, net...................................... 762,996 526,784 Other assets................................................ 48,097 39,688 -------- -------- Total assets........................................... $954,935 $914,888 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses..................... $ 45,858 $ 26,540 Current portion of long-term debt......................... 208 20 Other current liabilities................................. 679 1,010 -------- -------- Total current liabilities.............................. $ 46,745 $ 27,570 Long-term debt.............................................. 285,020 285,227 Other liabilities........................................... 1,924 1,977 Deferred income taxes....................................... 29,666 8,940 -------- -------- Total liabilities...................................... 363,355 323,714 -------- -------- Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, stated value $1,000 per share, 113,643 and 102,702 shares issued and outstanding, respectively....... 117,530 102,732 Series B Cumulative Exchangeable Redeemable Preferred Stock due 2009, stated value $10,000 per share, 250 and 0 shares issued and outstanding, respectively...................... 2,178 -- Stockholders' equity: Class A common stock, par value $.01 per share; 50,000,000 shares authorized; 28,378,976 and 26,052,393 shares issued and outstanding................................. 284 261 Class B common stock, par value $.01 per share; 20,000,000 shares authorized; 4,479,343 and 6,629,343 shares issued and outstanding................................. 45 66 Class C common stock, par value $.01 per share; 30,000,000 shares authorized; 2,307,277 and 2,151,277 shares issued and outstanding................................. 23 21 Additional paid-in-capital................................ 512,284 516,576 Loans to officers......................................... (9,984) -- Accumulated deficit....................................... (30,780) (28,482) -------- -------- Total stockholders' equity.................................. 471,872 488,442 -------- -------- Total liabilities and stockholders' equity................ $954,935 $914,888 ======== ========
See Accompanying Notes to Consolidated Financial Statements F-4 54 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
2000 1999 1998 ---- ---- ---- Revenues................................................. $ 246,244 $ 194,940 $ 108,172 Less: agency commissions............................... (20,333) (14,921) (9,385) ---------- ---------- ---------- Net revenues........................................ 225,911 180,019 98,787 Operating expenses: Station operating expenses, excluding depreciation, amortization and LMA fees (including provision for doubtful accounts of $23,751, $2,504 and $964 respectively)....................................... 191,336 133,328 72,154 Depreciation and amortization.......................... 44,003 32,564 17,113 LMA fees............................................... 4,825 4,165 2,404 Corporate general and administrative................... 18,232 8,204 5,607 Restructuring and other charges........................ 16,226 -- -- ---------- ---------- ---------- Total operating expenses............................ 274,622 178,261 97,278 Operating income (loss)............................. (48,711) 1,758 1,509 ---------- ---------- ---------- Nonoperating income (expense): Interest expense....................................... (32,771) (27,041) (15,551) Interest income........................................ 6,716 4,164 2,373 Other income (expense), net............................ 73,280 627 (2) ---------- ---------- ---------- Total nonoperating income (expenses), net........... 47,225 (22,250) (13,180) ---------- ---------- ---------- Loss before income taxes............................ (1,486) (20,492) (11,671) Income tax (expense) benefit............................. (812) 6,870 2,226 ---------- ---------- ---------- Loss before extraordinary item...................... (2,298) (13,622) (9,445) Extraordinary loss on early extinguishment of debt....... -- -- (1,837) ---------- ---------- ---------- Net loss............................................ (2,298) (13,622) (11,282) Preferred stock dividends, deemed dividends, accretion of discount, and redemption premium....................... 14,875 23,790 13,591 ---------- ---------- ---------- Net loss attributable to common stockholders........ $ (17,173) $ (37,412) $ (24,873) ========== ========== ========== Basic and diluted loss per common share.................. $ (0.49) $ (1.50) $ (1.55) ========== ========== ========== Weighted average common shares outstanding............... 35,138,650 24,938,276 16,085,000 ---------- ---------- ----------
See Accompanying Notes to Consolidated Financial Statements F-5 55 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
CLASS A CLASS B CLASS C COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK ----------------- ------------------ ------------------ ----------------- ADDITIONAL NUMBER PAR NUMBER PAR NUMBER PAR NUMBER PAR PAID-IN OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE CAPITAL --------- ----- --------- ----- --------- ----- --------- ----- ---------- Balance at January 1, 1998..... 1,000 -- -- $ -- -- $ -- -- $ -- $ 53,549 ====== == ========== ==== ========== ==== ========= ==== ======== Capital contribution........... -- -- -- -- -- -- -- -- 15,211 Preferred stock dividend and accretion of discount........ -- -- -- -- -- -- -- -- (13,591) Reorganization concurrent with IPO.......................... (1,000) -- 1,346,932 14 -- -- -- -- -- Proceeds from IPO.............. -- -- 7,228,572 72 8,785,416 88 2,376,277 24 101,003 Preferred and common stock offering costs............... -- -- -- -- -- -- -- -- (13,961) Share exchange................. -- -- 125,000 1 (125,000) (1) -- -- -- Net loss and comprehensive loss......................... -- -- -- -- -- -- -- -- -- ------ -- ---------- ---- ---------- ---- --------- ---- -------- Balance at December 31, 1998... -- -- 8,700,504 $ 87 8,660,416 $ 87 2,376,277 $ 24 $142,211 ====== == ========== ==== ========== ==== ========= ==== ======== Capital contribution........... -- -- 27,580 -- -- -- -- -- 384 Preferred stock dividend....... -- -- -- -- -- -- -- -- (17,776) Proceeds from follow-on offerings.................... -- -- 14,915,600 149 -- -- -- -- 416,244 Common stock offering costs.... -- -- -- -- -- -- -- -- (23,337) Redemption of preferred stock........................ -- -- -- -- -- (6,014) BSI stock issuance............. -- -- 152,636 2 -- -- -- -- 4,864 Share exchange................. -- -- 2,256,073 23 (2,031,073) (21) (225,000) (3) -- Comprehensive loss: Net loss..................... -- -- -- -- -- -- -- -- -- Other comprehensive income... -- -- -- -- -- -- -- -- -- ------ -- ---------- ---- ---------- ---- --------- ---- -------- Total comprehensive loss....... -- -- -- -- -- -- -- -- -- ------ -- ---------- ---- ---------- ---- --------- ---- -------- Balance at December 31, 1999... -- -- 26,052,393 $261 6,629,343 $ 66 2,151,277 $ 21 $516,576 ====== == ========== ==== ========== ==== ========= ==== ======== Issuance of common stock....... -- -- 17,674 -- -- -- -- -- 251 Preferred stock dividend....... -- -- -- -- -- -- -- -- (14,875) Common stock offering costs.... -- -- -- -- -- -- -- -- (381) Share exchange................. -- -- 2,250,000 23 (2,150,000) (21) (100,000) (1) -- Issuance of common stock in acquisition.................. -- -- 58,909 -- -- -- -- -- 732 Loans to officers for common stock........................ -- -- -- -- -- -- 256,000 3 9,981 Net loss and comprehensive loss......................... -- -- -- -- -- -- -- -- -- ------ -- ---------- ---- ---------- ---- --------- ---- -------- Balance at December 31, 2000... -- -- 28,378,976 $284 4,479,343 $ 45 2,307,277 $ 23 $512,284 ====== == ========== ==== ========== ==== ========= ==== ======== ACCUMULATED OTHER TOTAL LOANS TO ACCUMULATED COMPREHENSIVE STOCKHOLDERS' OFFICERS DEFICIT INCOME EQUITY -------- ----------- ------------- ------------- Balance at January 1, 1998..... $ -- $ (3,578) $ 5 $ 49,976 ======= ======== ==== ======== Capital contribution........... -- -- -- 15,211 Preferred stock dividend and accretion of discount........ -- -- -- (13,591) Reorganization concurrent with IPO.......................... -- -- -- 14 Proceeds from IPO.............. -- -- -- 101,187 Preferred and common stock offering costs............... -- -- -- (13,961) Share exchange................. -- -- -- 0 Net loss and comprehensive loss......................... -- (11,282) -- (11,282) ------- -------- ---- -------- Balance at December 31, 1998... $ $(14,860) $ 5 $127,554 ======= ======== ==== ======== Capital contribution........... -- -- -- 384 Preferred stock dividend....... -- -- -- (17,776) Proceeds from follow-on offerings.................... -- -- -- 416,393 Common stock offering costs.... -- -- -- (23,337) Redemption of preferred stock........................ -- -- -- (6,014) BSI stock issuance............. -- -- -- 4,866 Share exchange................. -- -- -- (1) Comprehensive loss: Net loss..................... -- (13,622) (13,622) Other comprehensive income... -- -- (5) (5) ------- -------- ---- -------- Total comprehensive loss....... -- (13,622) (5) (13,627) ------- -------- ---- -------- Balance at December 31, 1999... $ $(28,482) $ 0 $488,442 ======= ======== ==== ======== Issuance of common stock....... -- -- -- 251 Preferred stock dividend....... -- -- -- (14,875) Common stock offering costs.... -- -- -- (381) Share exchange................. -- -- -- 1 Issuance of common stock in acquisition.................. -- -- -- 732 Loans to officers for common stock........................ (9,984) -- -- -- Net loss and comprehensive loss......................... -- (2,298) -- (2,298) ------- -------- ---- -------- Balance at December 31, 2000... $(9,984) $(30,780) $ 0 $471,872 ======= ======== ==== ========
See Accompanying Notes to Consolidated Financial Statements F-6 56 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (DOLLARS IN THOUSANDS)
2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net loss.................................................. $ (2,298) $ (13,622) $ (11,282) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary loss on early extinguishment of debt...... -- -- 1,837 Depreciation............................................ 13,178 8,123 3,590 Amortization of goodwill, intangible assets and other assets................................................ 32,592 25,617 13,523 Provision for doubtful accounts......................... 23,751 2,504 964 Gain on sale of stations................................ (75,553) -- -- Deferred taxes.......................................... 812 (6,983) (2,352) Asset write-down for restructuring and other charges.... 11,030 -- -- Changes in assets and liabilities, net of effects of acquisitions/dispositions Accounts receivable..................................... (15,695) (28,061) (22,238) Prepaid expenses and other current assets............... (90) (2,375) (2,361) Accounts payable and accrued expenses................... 135 6,725 14,216 Other assets............................................ (1,742) (2,136) (300) Other liabilities....................................... (685) (3,436) (250) --------- --------- --------- Net cash used in operating activities.............. (14,565) (13,644) (4,653) --------- --------- --------- Cash flows from investing activities: Acquisitions.............................................. (172,795) (152,737) (342,845) Escrow deposits on pending acquisitions................... (9,133) (19,446) (1,335) Capital expenditures...................................... (9,480) (18,561) (6,649) Other..................................................... 1,134 (1,361) (196) --------- --------- --------- Net cash used in investing activities.............. (190,274) (192,105) (351,025) --------- --------- --------- Cash flows from financing activities: Proceeds from revolving line of credit.................... -- 176,950 175,000 Payments on revolving line of credit...................... -- (114,450) (155,035) Proceeds from sale of senior subordinated notes........... -- -- 160,000 Payments for debt issuance costs.......................... (1,935) (4,209) (9,870) Payments on promissory notes.............................. (19) (21) (278) Proceeds from issuance of redeemable preferred stock...... 2,500 -- 106,724 Payment of dividend on Series A Preferred Stock........... (3,530) -- -- Payments for redemption of preferred stock................ -- (51,269) -- Proceeds from issuance of common stock.................... -- 416,781 116,527 Payments for preferred and common stock offering costs.... (779) (23,337) (14,078) --------- --------- --------- Net cash (used in) provided by financing activities....................................... (3,763) 400,445 378,990 --------- --------- --------- Increase(decrease) in cash and cash equivalents............. (208,602) 194,696 23,312 Cash and cash equivalents at beginning of year.............. 219,581 24,885 1,573 --------- --------- --------- Cash and cash equivalents at end of year.................... $ 10,979 $ 219,581 $ 24,885 ========= ========= ========= Supplemental disclosures of cash flow information: Interest paid............................................. $ 31,827 $ 25,723 $ 7,258 Income taxes paid......................................... 67 112 26 ========= ========= ========= Non-cash operating, investing and financing activities: Trade revenue............................................. $ 12,961 $ 10,578 $ 6,226 Trade expense............................................. 12,773 10,301 6,157 Assets acquired through notes payable..................... 600 6,268 2,065 Liabilities assumed through acquisitions.................. 216 456 942 Capital contribution from Cumulus Media LLC............... -- -- 15,136 Advance on assets to be sold received directly into restricted cash account................................. 11,978 -- -- Proceeds on sale of stations received directly into restricted cash account................................. 175,363 -- -- Payments for acquisitions remitted directly from restricted cash account................................. 187,341 -- -- ========= ========= =========
See Accompanying Notes to Consolidated Financial Statements F-7 57 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of Business Cumulus Media Inc., ("Cumulus" or the "Company") is a radio broadcasting corporation incorporated in the state of Illinois on May 22, 1997 focused on acquiring, operating and developing commercial radio stations in mid-size radio markets in the United States and the Eastern Caribbean. Principles of Consolidation The consolidated financial statements include the accounts of Cumulus and its wholly owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Concentration of Credit Risks In the opinion of management, credit risk with respect to accounts receivable is limited due to the large number of diversified customers and the geographic diversification of the Company's customer base. The Company performs ongoing credit evaluations of its customers and believes that adequate allowances for any uncollectible accounts receivable are maintained. During the third quarter of 2000, the Company implemented a new credit and collection policy across all markets designed to ensure uniform procedures for the extension of credit and collection of receivables. The management team has also created incentives for the Company's sales personnel in each of our markets to collect delinquent accounts receivable. We believe these policies and procedures will reduce the Company's loss experience from uncollectible accounts receivable. Property and Equipment Property and equipment are recorded at cost. Property and equipment acquired in business combinations are recorded at their estimated fair value on the date of acquisition under the purchase method of accounting. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease. Routine maintenance and repairs are expensed as incurred. Depreciation of construction in progress is not recorded until the assets are placed into service. Goodwill and Intangible Assets Specifically identified intangible assets, primarily broadcast licenses, are recorded at their estimated fair value on the date of acquisition under the purchase method of accounting. Goodwill represents the excess of cost over the fair value of tangible assets and specifically identified intangible assets. Amortization is provided using the straight-line method over the estimated useful lives of the assets. Deposits on pending acquisitions are deferred and presented as other assets until the acquisition is consummated, at which time the amounts are allocated between tangible and intangible assets under the purchase method of accounting. F-8 58 Impairment of Long-Lived Assets The Company reviews the carrying value of its long-lived assets, including property and equipment, goodwill and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, the asset is considered impaired and an expense is recorded in an amount required to reduce the carrying amount of the asset to its then fair value. Software Development Costs Costs of internal use software are accounted for in accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Accordingly, certain software costs are capitalized and amortized using the straight-line method over the estimated useful lives of the assets. Capitalized internal use software costs were insignificant in 2000. The Company capitalized $2.4 million of internal use software costs in 1999. Debt Issuance Costs The costs related to the issuance of debt are capitalized and amortized to interest expense over the life of the related debt. During the years ended December 31, 2000, 1999 and 1998 the Company recognized amortization expense of debt issuance costs of approximately, $1.8 million, $1.2 million and $0.6 million, respectively. Revenue Recognition Revenue is derived primarily from the sale of commercial airtime to local and national advertisers. Revenue is recognized as commercials are broadcast. Trade Agreements The Company trades commercial airtime for goods and services used principally for promotional, sales and other business activities. An asset and liability is recorded at the fair market value of the goods or services received. Trade revenue is recorded and the liability is relieved when commercials are broadcast and trade expense is recorded and the asset relieved when goods or services are received or used. Local Marketing Agreements In certain circumstances, the Company enters into a local marketing agreement ("LMA") or time brokerage agreement with a Federal Communications Commission ("FCC") licensee of a radio station. In a typical LMA, the licensee of the station makes available, for a fee, airtime on its station to a party, which supplies programming to be broadcast on that airtime, and collects revenues from advertising aired during such programming. Revenues earned and LMA fees incurred pursuant to local marketing agreements or time brokerage agreements are recognized at their gross amounts in the accompanying consolidated statements of operations. Stock-based Compensation The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, to account for its fixed plan employee stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has F-9 59 elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share Basic and diluted loss per share is computed in accordance with SFAS No. 128, "Earnings Per Share." Basic and diluted loss per share are the same, because there were no securities outstanding which had a dilutive effect for the years ended December 31, 2000, 1999, and 1998. The calculation of basic and diluted loss per share for the year ended December 31, 1998 was determined after giving effect to the exchange of the Company's shares by Cumulus Media, LLC for the Company's initial public offering. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. Statement 133 is amended by Statement 137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. Management does not believe adoption of this statement will materially impact the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), which summarizes the views of the Commission staff in applying generally accepted accounting principles to revenue recognition in financial statements. The Company's revenue recognition principles are consistent with the guidance set forth in SAB 101, which the Company adopted on July 1, 2000. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25" ("FIN 44"). This Interpretation clarifies issues relating to stock compensation. FIN 44 is effective July 1, 2000; however, certain conclusions in this Interpretation cover specific events that occurred prior to July 1, 2000. The adoption of this interpretation on July 1, 2000 does not have any impact on the Company's historical financial statements. Reclassifications Certain 1999 and 1998 balances have been reclassified to conform to the 2000 presentation. 2. ACQUISITIONS AND DISPOSITIONS The Company completed acquisitions to purchase seventy-six, twenty-two, and fifty-six radio stations for $430.3 million, $159.0 million and $344.0 million in cash and stock during 2000, 1999 and 1998, respectively. The acquisitions were funded with cash on hand, prior escrow deposits on pending acquisitions, and restricted cash from asset exchanges. These aggregate acquisition amounts include the assets acquired pursuant to the asset exchange and sales transactions and other individually significant acquisitions described below. F-10 60 The aggregate purchase prices of the acquisitions described above include direct costs relating to the acquisitions. An allocation of the aggregate purchase prices to the estimated fair values of the assets acquired and liabilities assumed is presented below (dollars in thousands).
2000 1999 1998 ---- ---- ---- Current assets, other than cash................. $ 1,113 $ 1,707 $ 1,701 Property and equipment.......................... 45,636 15,087 30,192 Other assets.................................... -- -- 625 Intangible assets............................... 388,786 149,203 327,516 Current liabilities............................. (236) (456) (942) Deferred liabilities............................ (5,034) (6,536) (15,074) -------- -------- -------- $430,265 $159,005 $344,018 ======== ======== ========
CLEAR CHANNEL ASSET SALES AND EXCHANGES The Company entered into a series of asset exchange and sales agreements with Clear Channel Communications, Inc. and subsidiaries ("Clear Channel") during the year ended December 31, 2000, which were consummated in three phases. The Company completed the first phase of the asset exchange and sales transaction with Clear Channel ("Phase 1") on August 25, 2000, whereby the Company transferred 25 stations in 5 markets to Clear Channel in exchange for 8 stations in 3 markets plus $91.5 million of cash proceeds. These proceeds were received in a restricted cash account and were subsequently remitted to the seller in connection with the acquisition of Connoisseur Communications Partners LP ("Connoisseur") on October 2, 2000, as described below. The Company consummated the second phase of the asset exchange and sales transaction with Clear Channel on October 2, 2000, pursuant to which the Company sold 28 stations in 5 markets for $68.9 million of initial cash proceeds. These proceeds were received in a restricted cash account and were subsequently remitted to the seller in connection with the acquisition of Connoisseur on October 2, 2000, as described below. Upon receipt of regulatory approval for 6 of the stations being sold, the Company will receive an additional $6.0 million of cash proceeds. The Company sold the tangible assets of certain properties to Clear Channel on October 2, 2000, for $15.0 million of cash proceeds. These proceeds were received in a restricted cash account and were subsequently remitted to the seller in connection with the acquisition of Connoisseur on October 2, 2000, as described below. The Company recorded $75.6 million of gains from the asset exchange and sales transactions with Clear Channel for the year ended December 31, 2000, which have been presented in other income in the accompanying statement of operations. The $30.1 million tax liability arising from these gains on the sale of assets has been deferred because the stations sold were replaced with qualified assets. The proceeds from the divestitures were held in restricted cash accounts until the replacement properties were purchased. The Company subsequently consummated the third phase of the asset exchange and sales transaction with Clear Channel ("Phase 3") on January 18, 2001, as described in Note 20. The Company received a $12.0 million advance from Clear Channel during 2000 for the assets sold pursuant to Phase 3, which has been presented in accounts payable and accrued expenses in the accompanying consolidated balance sheet as of December 31, 2000. The proceeds from this advance were received in a restricted cash account and were subsequently remitted to the seller in connection with the acquisition of Connoisseur on October 2, 2000, as described below. CONNOISSEUR ACQUISITION On October 2, 2000, the Company completed the acquisition of 35 stations in 9 markets from Connoisseur for a total purchase price of $253.0 million. F-11 61 OTHER On September 15, 1999, the Company acquired all of the assets of Broadcast Software International, Inc. (BSI), a Eugene, Oregon-based developer of digital audio software, for a total purchase price of $5.4 million in cash and stock. BSI is a software development company specializing in digital audio applications for broadcast radio and television as well as for Internet broadcasters. Subsequent to the acquisition, BSI operated as a subsidiary of Cumulus with operations remaining in its current Eugene, Oregon headquarters. All of the Company's acquisitions were accounted for under the purchase method of accounting, including stations acquired in the asset exchange and sales transactions with Clear Channel. As such, the accompanying consolidated balance sheets include the acquired assets and liabilities and the accompanying consolidated statements of operations include the results of operations of the acquired entities from their respective dates of acquisition. The accompanying consolidated statements of operations include the results of operations of the divested entities through the date of disposition. PRO FORMA The following unaudited condensed results of operations, prepared on a pro forma basis, present the results of operations as if all of the above acquisitions and dispositions of radio stations in 2000 and 1999 had been completed as of January 1, 1999 (amounts in thousands, except per share data):
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ (UNAUDITED) (UNAUDITED) Net revenues.......................................... $218,011 $214,402 Operating income (loss)............................... $(28,701) $ 13,341 Net income (loss)..................................... $(34,249) $ (5,345) Net loss attributable to common stockholders.......... $(49,123) $(29,135) ======== ======== Basic and diluted loss per common share............... $ (1.40) $ (1.17)
Escrow funds of approximately $31.9 million and $22.8 million paid by the Company in connection with pending acquisitions have been classified as Other Assets at December 31, 2000 and December 31, 1999 respectively, in the accompanying consolidated balance sheets. The Company operated 41 and 114 stations under LMA's as of December 31, 2000 and 1999, respectively. The statements of operations for the years ended December 31, 2000 and 1999 include the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMA from the effective date of the LMA through the earlier of the acquisition date or December 31. 3. RESTRUCTURING AND OTHER CHARGES During the year ended December 31, 2000, the Company recorded $16.2 million in restructuring and other charges comprised of i) a $9.3 million Corporate restructuring charge, ii) a $5.1 million charge related to the impairment of goodwill on the Company's wholly owned subsidiary, BSI and iii) a $1.8 million charge related to the impairment of the net assets of its wholly owned subsidiary, The Advisory Board of Nevada. During June 2000 the Company implemented two separate Board-approved restructuring programs. During the quarter ended June 30, 2000, the Company recorded a $9.3 million charge to operating expenses related to restructuring costs. The June 2000 restructuring programs were the result of Board-approved mandates to discontinue the operations of Cumulus Internet Services and to centralize the Company's corporate administrative organization and employees in Atlanta, Georgia. The programs included severance and related costs associated with the release of 37 employees and costs for vacated leased facilities, impaired leasehold improvements at vacated leased facilities, and impaired assets related to the Internet businesses. F-12 62 The following table depicts the amounts associated with and activity related to the June 2000 restructuring programs through December 31, 2000 (dollars in thousands):
ASSET WRITE-OFF'S UNPAID BALANCE THROUGH PAID THROUGH AS OF RESTRUCTURING DECEMBER 31, DECEMBER 31, DECEMBER 31, EXPENSE CATEGORY CHARGE 2000 2000 2000 ---------------- ------------- ----------------- ------------ -------------- Employee severance and related costs.... $ 978 $ -- $ 450 $ 528 Lease termination costs................. 2,557 -- 178 2,379 Impaired leasehold improvements at vacated facilities.................... 430 430 -- -- ------ ------ ------ ------ Office relocation subtotal......... 3,965 430 628 2,907 ------ ------ ------ ------ Internet asset write-off................ 4,100 4,100 -- -- Accrued internet contractual obligations........................... 749 -- 374 375 Internet lease termination costs........ 482 -- 48 434 ------ ------ ------ ------ Internet services subtotal......... 5,331 4,100 422 809 ------ ------ ------ ------ Restructuring charge totals........ $9,296 $4,530 $1,050 $3,716 ====== ====== ====== ======
As of December 31, 2000, approximately $3.7 million in accrued restructuring costs remain related to the Company's June, 2000 restructuring programs. This balance is comprised of $0.5 million in employee severance and related charges, $2.4 million in lease termination costs, $0.4 million related to amounts owed for software development and asset acquisitions related to capitalized internet system and infrastructure assets, and $0.4 million in Internet lease termination charges. The remaining portion of the unpaid balance is expected to be paid by the end of June 2001, except for the Company's lease obligations at the vacated facilities in Milwaukee and Chicago. Lease obligations will be paid by the end of 2003. In connection with the continued strategic initiative to focus on its core radio business, the Company conducted a review of certain non-radio operations during the fourth quarter of 2000. This strategic review triggered an impairment review of the long-lived assets of these operations, and it was determined that the carrying value of certain long-lived assets exceeded the projected undiscounted future net cash flows expected to be generated by such assets. The estimated future net cash flows were estimated based on present levels of sales volume, because the Company does not expect to devote significant funding to the development of products and services provided by these non-radio operations in the future. Accordingly, the Company recorded a $6.9 million impairment write-down consisting of the following: (i) a $5.1 million impairment charge to write off goodwill of BSI, and (ii) a $1.8 million impairment charge to write off the net assets of its wholly owned subsidiary, The Advisory Board of Nevada. For the year ended December 31, 2000, net revenue and operating loss of BSI were $1.2 million and $5.7 million, respectively. For the year ended December 31, 2000, net revenue and operating loss of The Advisory Board of Nevada were $1.3 million and $0.5 million, respectively. On March 13, 2001, the Company divested of The Advisory Board of Nevada and received no proceeds. F-13 63 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following: as of December 31, 2000 and 1999 (dollars in thousands):
ESTIMATED USEFUL LIFE 2000 1999 ----------- ---- ---- Land......................................... $ 4,806 $ 3,607 Broadcasting and other equipment............. 3 to 7 years 68,126 55,730 Furniture and fixtures....................... 5 years 8,658 6,361 Leasehold improvements....................... 5 years 3,138 2,554 Buildings.................................... 20 years 12,719 9,006 Construction in progress..................... 887 1,809 -------- -------- 98,334 79,067 Less accumulated depreciation................ (18,505) (12,104) -------- -------- $ 79,829 $ 66,963 ======== ========
5. INTANGIBLE ASSETS Intangible assets consist of the following as of December 31, 2000 and 1999 (dollars in thousands):
ESTIMATED USEFUL LIFE 2000 1999 ----------- ---- ---- Broadcasting licenses........................ 25 years $533,921 $261,644 Goodwill..................................... 25 years 272,293 288,673 Other intangibles............................ 2 to 5 years 14,655 13,984 -------- -------- 820,869 564,301 Less accumulated amortization................ (57,873) (37,517) -------- -------- $762,996 $526,784 ======== ========
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following as of December 31, 2000 and 1999 (dollars in thousands):
2000 1999 ---- ---- Accounts payable........................................... $ 3,947 $ 4,522 Accrued compensation....................................... 2,094 830 Accrued royalties.......................................... 473 379 Accrued commissions........................................ 6,423 2,635 Accrued taxes.............................................. 329 -- Barter payable............................................. 1,766 1,584 Accrued professional fees.................................. 999 355 Due to seller of acquired companies........................ 964 1,325 Accrued restructuring costs................................ 3,716 -- Advance on assets to be sold............................... 11,978 -- Accrued interest........................................... 8,405 9,228 Preferred dividends payable................................ -- 3,530 Accrued equity offering cost............................... -- 371 Accrued employee benefits.................................. 631 -- Due to affiliates.......................................... 674 -- Accrued acquisition liabilities............................ 1,114 -- Other...................................................... 2,345 1,781 ------- ------- Total accounts payable and accrued expenses........... $45,858 $26,540 ======= =======
F-14 64 7. LONG-TERM DEBT The Company's long-term debt consists of the following at December 31, 2000 and 1999 (dollars in thousands):
2000 1999 ---- ---- Term loan facility at 10.07% and 9.22%, respectively..... $125,000 $125,000 Senior Subordinated Notes, 10 3/8%, due 2008............. 160,000 160,000 Other.................................................... 228 247 -------- -------- 285,228 285,247 Less: Current portion of long-term debt.................. (208) (20) -------- -------- $285,020 $285,227 ======== ========
A summary of the future maturities of long-term debt follows (dollars in thousands): 2001........................................................ $ 211 2002........................................................ 775 2003........................................................ 777 2004........................................................ 780 2005........................................................ 783 Thereafter.................................................. 281,902 -------- $285,228 ========
As of December 31, 2000, the Company had outstanding $160.0 million in aggregate principal of its 10 3/8% Senior Subordinated Notes ("Notes") which have a maturity date of July 1, 2008. The Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior debt of the Company (including obligations under its credit facility). Interest on the Notes is payable semi-annually in arrears. Debt issuance costs are being amortized as interest expense over eight years for the credit facility and over 10 years for the Notes. On August 31, 1999, the Company's existing $190.0 million Senior Credit Facility ("Credit Facility")was amended and restated to provide for aggregate principal commitments of $225.0 million. The amended Credit Facility consisted of an eight-year term loan facility of $75.0 million, an eight and one-half year term loan facility of $50.0 million, a seven-year revolving credit facility of $50.0 million and a revolving credit facility of $50.0 million that is convertible to a seven-year term loan, at the option of the Company, 364 days from closing. The amount available under the seven-year revolving credit facility will be automatically reduced by 5% of the initial aggregate principal amount in each of the third and fourth years following closing, 10% of the initial aggregate principal amount in the fifth year following closing, 20% of the initial aggregate principal amount in the sixth year following the closing and the remaining 60% of the initial aggregate principal amount in the seventh year following closing. Under the terms of the Credit Facility, the Company drew down $125.0 million of the term loan facility on August 31, 1999, a portion of which was used to satisfy the principal amount of indebtedness on its preexisting credit facility with the same lender. On January 13, 2000 the Company entered into the First Amendment to the Credit Facility, which among other things, modified the limitation on investments provision in the Credit Facility to allow loans by the Company to officers of the Company (or their affiliates) in an amount not to exceed $10.0 million, the proceeds of which were used to purchase newly issued Class C Common Stock of the Company. On March 10, 2000 the Company entered into the Second Amendment to the Credit Facility, which among other things, modified the amounts available under letters of credit by increasing the amount from $25.0 million to $50.0 million in the Credit Facility to allow the Company to issue additional letters of credit in lieu of escrow deposits for pending acquisitions. F-15 65 On April 12, 2000 the Company received a waiver from our lenders that waived any defaults or events of default arising under the Credit Facility arising from the requirement that the annual financial statements for 1998 previously furnished to the lenders, and the quarterly financial statements for the third and fourth quarter of 1998 and the first, second and third fiscal quarters of fiscal 1999 previously furnished to the lenders be complete and accurate and all material respects ad be prepared in accordance with GAAP applied consistently throughout the periods reflected therein. The waiver resulted from the Company's restatement of its income tax expense and deferred tax liability balances for the periods referenced above. On July 25, 2000 the Company received a waiver from its lenders that, among other things, 1) waived the requirements of the definition of permitted acquisitions in the Credit Facility to the extent necessary to complete the acquisition of radio broadcast assets from subsidiaries of Clear Channel Communications as provided in the asset exchange and sale agreements described in Note 2; and 2) waived the requirements of the Credit Facility to the extent necessary to permit the asset sales and exchanges with subsidiaries of Clear Channel Communications described in Note 2; and 3) waived the requirements of the Credit Facility to the extent necessary to permit investments made prior to July 21, 2000 by the Company or any of its restricted subsidiaries in an aggregate amount up to $58.7 million in connection with the proposed acquisition by the Cumulus subsidiaries of certain radio broadcast assets to the extent such investments would not otherwise be permitted by the Credit Facility. The waiver also modified the interest coverage ratio requirement of the Credit Facility for the four consecutive fiscal quarters ending June 30, 2000 to a ratio of no less than 1.50 to 1.00 and waived any default or event of default arising from any non-compliance with the interest coverage ratio that may have occurred as of June 30, 2000. Finally, the waiver required that $91.5 million of proceeds from the asset exchange and sale agreements with subsidiaries of Clear Channel Communications be placed in a restricted cash account to be used in the Connoisseor acquisition. On August 29, 2000 the Company's ability to borrow under a $50.0 million revolving credit facility that would convert to a seven-year term loan expired in accordance with the terms of the Credit Facility. The Company did not seek reinstatement of this facility. On September 27, 2000 the Company and its lenders under the Credit Facility entered into the Third Amendment, Consent and Waiver to the Amended and Restated Credit Agreement dated as of August 31, 1999 (the "Third Amendment"). The Third Amendment allows the Company to complete the second and third phases of the asset exchange and sale with subsidiaries of Clear Channel Communications, the acquisitions of radio station assets from Connoisseur Communications Partners, L.P., Cape Fear Broadcasting and McDonald Media Inc. subject to the satisfaction of renegotiated financial covenants. The Third Amendment also modified the financial covenant requirements, including the consolidated leverage ratio, the consolidated senior debt ratio, the consolidated interest coverage ratio, and the consolidated fixed charge coverage ratio commencing with the trailing four quarters ended September 30, 2000. In addition to modifying certain financial covenants, the methodology for the calculation of these covenants was also modified. In consideration for entering into the Third Amendment, the Company paid the administrative agent a fee in the amount of $0.9 million and paid the lenders a fee of $0.8 million. In addition, the applicable maximum Eurodollar Loan margin on Revolving Credit Loans was increased from 3.00% to 3.25%; the applicable maximum Eurodollar Loan margin on Term Loan B Loans was increased from 3.000% to 3.375%; and the applicable maximum Eurodollar Loan margin on Term Loan C Loans was increased from 3.125% to 3.50%. The Company's obligations under the Credit Facility are collateralized by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries), including, without limitation, intellectual property, real property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries, except the capital stock of BSI and 65% of the capital stock of any first-tier foreign subsidiary. The obligations under the credit facility are also guaranteed by each of the direct and indirect domestic subsidiaries, except BSI and are required to be guaranteed by any additional subsidiaries acquired by Cumulus. Both the revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of our Credit Facility, 9.5% as of December 31, 2000) plus a margin ranging between 0.50% to 2.125%, or the Eurodollar Rate (as defined F-16 66 under the terms of the credit facility, 7.02% as of December 31, 2000) plus a margin ranging between 1.50% to 3.125% (in each case dependent upon the leverage ratio of the Company). At December 31, 2000 the Company's effective interest rate on term loan amounts outstanding under the Credit Facility was 10.1%. A commitment fee calculated at a rate ranging from 0.375% to 0.75% per annum (depending upon the Company's utilization rate) of the average daily amount available under the revolving lines of credit is payable quarterly in arrears, and fees in respect of letters of credit issued under the Credit Facility equal to the interest rate margin then applicable to Eurodollar Rate loans under the seven-year revolving credit facility are payable quarterly in arrears. In addition, a fronting fee of 0.125% is payable quarterly to the issuing bank. The eight-year term loan borrowings are repayable in quarterly installments beginning in the fourth quarter of 2001. The scheduled annual amortization is $0.8 million for each of the third, fourth, fifth, sixth and seventh years following closing and $71.3 million in the eighth year following closing. The eight and a half year term loan is repayable in two equal installments on November 30, 2007 and February 28, 2008. The amount available under the seven-year revolving credit facility will be automatically reduced in quarterly installments as described in the Credit Facility. Certain mandatory prepayments of the term loan facility and the revolving credit line and reductions in the availability of the revolving credit line are required to be made including: (i) 100% of the net proceeds from any issuance of capital stock or incurrence of indebtedness; (ii) 100% of the net proceeds from certain asset sales; and (iii) between 50% and 75% (dependent on our leverage ratio) of our excess cash flow. Under the terms of the Credit Facility, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. At December 31, 2000, the Company was in compliance with such financial and operating covenants. On April 12, 2000, July 25, 2000 and September 27, 2000 the Company received the waivers or amendments of certain requirements of the Credit Facility as described in detail above. The terms of the Credit Facility contain events of default after expiration of applicable grace periods, including failure to make payments on the Credit Facility, breach of covenants, breach of representations and warranties, invalidity of the agreement governing the Credit Facility and related documents, cross default under other agreements or conditions relating to indebtedness of Cumulus or the Company's restricted subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the credit facility, the majority of the lenders are able to declare all amounts under our Credit Facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under each term loan facility and the majority of the banks under each revolving credit facility may terminate such term loan facility and such revolving credit facility, respectively, upon an event of default. The $160.0 million 10 3/8% Senior Subordinated Notes Due 2008 Indenture ("Indenture") and the Series A Preferred Stock Certificates of Designation ("Certificates of Designation") limit the amount we may borrow without regard to the other limitations on incurrence of indebtedness contained therein under credit facilities to $150.0 million. As of December 31, 2000, we would be permitted, by the terms of the Indenture and the Certificates of Designation, to incur approximately $25.0 million of additional indebtedness under our credit facility without regard to the debt ratios included in our indenture. 8. REDEEMABLE PREFERRED STOCK (a) Series A Preferred Stock At December 31, 2000 and 1999 the Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 presented on the balance sheet represents 113,643 and 102,702 shares outstanding (each with a $1,000 par value), plus accrued dividends of $3.9 million and $0, respectively. Accrued dividends of F-17 67 $3.9 million were paid in kind on January 2, 2001. Accrued dividends of $3.5 million at December 31, 1999, which were included in current liabilities, were paid in cash on January 3, 2000. On October 1, 1999, the Company redeemed 43,750 shares of its Series A Preferred Stock for $51.3 million, including redemption premium of $6.0 million and accrued but unpaid dividends of $1.5 million. Holders of the Series A Preferred Stock have no voting rights. On or before July 1, 2003, the Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock. After July 1, 2003, dividends may only be paid in cash. The shares of Series A Preferred Stock are subject to mandatory redemption on July 1, 2009 at a price equal to 100% of the liquidation preference of $1,000 per share plus any and all accrued and unpaid cumulative dividends. The Series A Preferred Stock may be redeemed by the Company prior to such date under certain circumstances. The Company may at its option exchange all, but not less than all, of the then outstanding Series A Preferred Stock into fully registered debentures issued under an indenture between the Company and a trustee defined by the Certificates of Designation. Such debentures would be unsecured and subordinated in right of payment to debt in respect of the Credit Facility and the Notes. Such debentures would be subject to mandatory redemption only upon a change of control or as a result of certain asset divestitures, both as defined by the related indenture. (b) Series B Preferred Stock We issued 250 shares of our Series B Preferred Stock on October 2, 2000 for $2.5 million. The holders of the Series B Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to 12% of the liquidation preference per share of Series B Preferred Stock, payable quarterly, in arrears commencing on January 1, 2001. The Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series B Preferred Stock. There are no restrictions as to how dividends may be paid. At December 31, 2000 and 1999 the Series B Cumulative Exchangeable Redeemable Preferred Stock due 2009 disclosed on the balance sheet represents 250 and 0 shares outstanding (each with a $1,000 liquidation preference), plus accrued dividends of $0.1 million and $0, respectively. Holders of the Series B Preferred Stock have no voting rights. Additionally, the shares of Series B Preferred Stock may be converted, at the holder's discretion, on or after March 30, 2002 into Class B Common Stock at the then effective conversion rate. The number of shares of Class B Common Stock that will be issued upon conversion can be calculated by dividing the liquidation preference of one share of Series B Preferred Stock by the lower of the closing sales price of the Company's Class A Common Stock as reported by the NASDAQ Stock Market on the conversion date or the average of the closing sales prices of the Company's Class A Common Stock as reported by the NASDAQ Stock Market for the twenty (20) day trading period prior to the conversion date. The shares of Series B Preferred Stock are subject to mandatory redemption on October 3, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends and can be redeemed at any time at the Company's discretion with notice of not less than 30 days nor more than 60 days prior to the date of redemption. In connection with the issuance of the Series B preferred stock, the Company also issued warrants to acquire 22,221 shares of Class B common stock at an exercise price of $5.8937 per share. The Series B preferred stockholder is entitled to receive additional warrants to acquire 16,662 shares of Class B common stock at an exercise price of $5.8937 if the outstanding Series B preferred shares have not been redeemed as of December 31, 2001. The warrants issued in 2000 were recorded as a deemed dividend at their estimated fair value of $0.1 million. No warrants were exercised or cancelled during 2000. In connection with the issuance of the Series B preferred stock, the Company paid commitment fees to four entities, including two shareholders, who provided the Company with funding commitments related to the Series B Preferred Stock. Commitment fees totaling $1.0 million paid to three of these entities, which did not F-18 68 purchase Series B Preferred Stock, have been expensed in the accompanying statement of operations for the year ended December 31, 2000 as a component of non-operating expenses. 9. STOCKHOLDERS' EQUITY (a) Common Stock Each share of Class A Common Stock entitles its holders to one vote. Except upon the occurrence of certain events, holders of the Class B Common Stock are not entitled to vote. The Class B Common Stock is convertible at any time, or from time to time, at the option of the holder of such Class B Common Stock (provided that the prior consent of any governmental authority required to make such conversion lawful shall have been obtained) without cost to such holder (except any transfer taxes that may be payable if certificates are to be issued in a name other than that in which the certificate surrendered is registered), into Class A Common Stock or Class C Common Stock on a share-for-share basis; provided that the board of directors has determined that the holder of Class A Common Stock at the time of conversion would not disqualify the Company under, or violate, any rules and regulations of the FCC. Subject to certain exceptions, each share of Class C Common Stock entitles its holders to ten votes. The Class C Common Stock is convertible at any time, or from time to time, at the option of the holder of such Class C Common Stock (provided that the prior consent of any governmental authority required to make such conversion lawful shall have been obtained) without cost to such holder (except any transfer taxes that may be payable if certificates are to be issued in a name other than that in which the certificate surrendered is registered), into Class A Common Stock or Class C Common Stock on a share-for-share basis; provided that the board of directors has determined that the holder of Class A Common Stock at the time of conversion would not disqualify the Company under, or violate, any rules and regulations of the FCC. On July 27, 1999, the Company completed a follow-on public stock offering selling 9,664,000 shares of its Class A Common Stock for $22.919 per share, net of underwriter's discounts and commissions of $1.206 per share. The net proceeds of the offering were approximately $221.5 million. In addition, on August 10, 1999 the U.S. underwriters exercised an option granted by the Company, purchasing an additional 1,449,600 shares. Exercise of the option resulted in an additional $33.2 million in net offering proceeds to the Company. On November 18, 1999, the Company completed a follow-on public stock offering selling 3,700,000 shares of its Class A Common Stock for $37.05 per share, net of underwriter's discounts and commissions of $1.95 per share. The net proceeds of the offering were approximately $137.1 million and were primarily used to fund the Company's pending acquisitions in 2000. In addition, on December 6, 1999 the underwriters exercised an option granted by the Company, purchasing an additional 102,000 shares. Exercise of the option resulted in an additional $3.8 million in net offering proceeds to the Company. (b) Stock Purchase Plan On November 2, 1999, the Company's Board of Directors adopted and the Company's shareholders approved the Employee Stock Purchase Plan. The Employee Stock Purchase Plan is designed to qualify for certain income tax benefits for employees under the Section 423 of the Internal Revenue Code and contains 1,000,000 shares of Class A Common Stock. The plan allows qualifying employees to purchase Class A Common Stock at the end of each calendar year, commencing with the calendar year beginning January 1, 1999, at 85% of the lesser of the fair market value of the Class A Common Stock on the first and last trading days of the year. The amount each employee can purchase is limited to the lesser of (i) 15% of pay or (ii) $0.025 million of stock value on the first trading day of the year. An employee must be employed at least six months as of the first trading day of the year in order to participate in the Employee Stock Purchase Plan. F-19 69 10. STOCK OPTIONS 2000 STOCK INCENTIVE PLAN The Board of Directors approved the 2000 Stock Incentive Plan on July 31, 2000, and subsequently amended the Plan on February 23, 2001 subject to approval by the Company's shareholders. The purpose of the 2000 Stock Incentive Plan is to attract and retain certain selected officers, key employees, non-employee directors and consultants whose skills and talents are important to the Company's operations and reward them for making major contributions to the success of the Company. The aggregate number of shares of Class A Common Stock subject to the 2000 Stock Incentive Plan is 2,750,000, all of which may be granted as incentive stock options. In addition, no one person may receive options over more than 500,000 shares of Class A Common Stock in any one calendar year. The 2000 Stock Incentive Plan permits the Company to grant nonqualified stock options and incentive stock options ("ISOs"), as defined in Sections 422 of the Internal Revenue Code of 1986, as amended (the "Code"). No options may be granted under the 2000 Stock Incentive Plan after October 4, 2010. The Compensation Committee administers the 2000 Stock Incentive Plan. The Compensation Committee has full and exclusive power to interpret the 2000 Stock Incentive Plan and to adopt rules, regulations and guidelines for carrying out the 2000 Stock Incentive Plan as it may deem necessary or proper. Under the 2000 Stock Incentive Plan, current and prospective employees, non-employee directors, consultants or other persons who provide services to the Company are eligible to participate. As of December 31, 2000, there are outstanding options to purchase a total of 1,728,300 shares of Class A Common Stock exercisable at prices ranging from $3.9375 to $6.4375 per share under the 2000 Stock Incentive Plan. These options vest, in general, quarterly over four years, with the possible acceleration of vesting for some options if certain performance criteria are met. In addition, all options vest upon a change of control as more fully described in the 2000 Stock Incentive Plan. 1999 STOCK INCENTIVE PLAN On November 2, 1999, the Company's Board of Directors adopted and the Company's shareholders approved the 1999 Stock Incentive Plan to provide officers, other key employees and non-employee directors of the Company (other than participants in the Company's Executive Plan described below), as well as consultants to the Company, with additional incentives by increasing their proprietary interest in the Company. An aggregate of 900,000 shares of Class A Common Stock is subject to the 1999 Stock Incentive Plan, of which a maximum of 900,000 shares of Class A Common Stock is available to be awarded as incentive stock options and a maximum of 100,000 shares of Class A Common Stock is available to be awarded as restricted stock. In addition, subject to certain equitable adjustments, no one person will be eligible to receive options for more than 300,000 shares in any one calendar year and the maximum amount of restricted stock, which will be awarded to any one person during any calendar year, is $0.5 million. The 1999 Stock Incentive Plan permits the Company to grant awards in the form of stock options (including both incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options) and restricted shares of the Class A Common Stock. All stock options awarded under the plan will be granted at an exercise price of not less than fair market value of the Class A Common Stock on the date of grant. No award will be granted under the 1999 Stock Incentive Plan after August 30, 2009. The 1999 Stock Incentive Plan is administered by the Compensation Committee of the Board, which has exclusive authority to grant awards under the plan and to make all interpretations and determinations affecting the plan. The Compensation Committee has discretion to determine the individuals to whom awards are granted, the amount of such award, any applicable vesting schedule, whether awards vest upon the occurrence of a Change in Control (as defined in the plan) and other terms of any award. The Compensation Committee may delegate to certain senior officers of the Company its duties under the plan subject to such conditions or limitations as the Compensation Committee may establish. Any award made to a non-employee director must be approved by the Company's Board of Directors. In the event of any changes in the capital structure of the F-20 70 Company, the Compensation Committee will make proportional adjustments to outstanding awards so that the net value of the award is not changed. As of December 31, 2000, there are outstanding options to purchase a total of 819,188 shares of Class A Common Stock exercisable at a price of $27.875 per share under the 1999 Stock Incentive Plan. These options vest, in general, annually over five years, with the possible acceleration of vesting for some options if certain performance criteria are met. In addition, all options vest upon a change of control as more fully described in the 1999 Stock Incentive Plan. 1998 STOCK INCENTIVE PLAN During 1998, the Company's Board of Directors adopted the 1998 Stock Incentive Plan. An aggregate of 1,288,834 shares of Class A Common Stock is subject to the 1998 Stock Incentive Plan, of which a maximum of 1,288,834 shares of Class A Common Stock are available to be awarded at subject to incentive stock options and a maximum of 100,000 shares of Class A Common Stock is available to be awarded as restricted stock. In addition, subject to certain equitable adjustments, no one person will be eligible to receive options for more than 300,000 shares in any one calendar year and the maximum amount of restricted stock which will be awarded to any one person during any calendar year is $500,000. The 1998 Stock Incentive Plan permits the Company to grant awards in the form of stock options (including both incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options) and restricted shares of the Class A Common Stock. All stock options awarded under the plan will be granted at an exercise price of not less than fair market value of the Class A Common Stock on the date of grant. No award will be granted under the 1998 Stock Incentive Plan after June 22, 2008. The 1998 Stock Incentive Plan is administered by the Compensation Committee of the Board, which has exclusive authority to grant awards under the plan and to make all interpretations and determinations affecting the plan. The Compensation Committee has discretion to determine the individuals to whom awards are granted, the amount of such award, any applicable vesting schedule, whether awards vest upon the occurrence of a Change in Control (as defined in the 1998 Stock Incentive Plan) and other terms of and award. The Compensation Committee may delegate to certain senior officers of the Company its duties under the plan subject to such conditions or limitations as the Compensation Committee may establish. Any award made to a non-employee director must be approved by the Company's Board of Directors. In the event of any changes in the capital structure of the Company, the Compensation Committee will make proportional adjustments to outstanding awards so that the net value of the award is not changed. As of December 31, 2000, there are outstanding options to purchase a total of 784,223 shares of Class A Common Stock exercisable at a price of $14.00 per share under the 1998 Stock Incentive Plan. These options vest, in general, over five years, with the possible acceleration of vesting for some options if certain performance criteria are met. In addition, all options vest upon a change of control as more fully described in the 1998 Stock Incentive Plan. 1999 EXECUTIVE STOCK INCENTIVE PLAN On November 2, 1999, the Company's Board of Directors also adopted the 1999 Executive Stock Incentive Plan (the "1999 Executive Plan") to provide certain key executives of the Company with additional incentives by increasing their proprietary interest in the Company. An aggregate of 1,000,000 shares of Class C Common Stock is subject to the 1999 Executive Plan. In addition, no one person will be eligible to receive options for more than 500,000 shares in any one calendar year. Richard W. Weening, Executive Chairman, Treasurer and Director, and Lewis W. Dickey, Jr., Executive Vice Chairman and Director are the sole participants in the 1999 Executive Plan. The 1999 Executive Plan permits the Company to grant awards in the form of stock options (including both incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options) of Class C Common Stock. F-21 71 Stock options under the 1999 Executive Plan were granted on August 30, 1999 at an exercise price of $27.875 per share and vest quarterly in equal installments over a four-year period (subject to accelerated vesting in certain circumstances). The 1999 Executive Plan is administered by the Compensation Committee of the Board, which will have exclusive authority to grant awards under the Executive Plan and to make all interpretations and determinations affecting the 1999 Executive Plan. In the event of any changes in the capital structure of the Company, the Compensation Committee will make proportional adjustments to outstanding awards granted under the 1999 Executive Plan so that the net value of the award is not changed. As of December 31, 2000, there are outstanding options to purchase a total of 1,000,000 shares of Class C Common Stock under the 1999 Executive Plan. 1998 EXECUTIVE STOCK INCENTIVE PLAN The Company's Board of Directors has also adopted the 1998 Executive Stock Incentive Plan (the "1998 Executive Plan"). An aggregate of 2,001,380 shares of Class C Common Stock is subject to the 1998 Executive Plan. In addition, no one person will be eligible to receive options for more than 1,000,690 shares in any one calendar year. Richard W. Weening, Executive Chairman, Treasurer and Director, and Lewis W. Dickey, Jr., Executive Vice Chairman and Director are the sole participants in the 1998 Executive Plan. The 1998 Executive Plan permits the Company to grant awards in the form of stock options (including both incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options) of Class C Common Stock. Stock options under the 1998 Executive Plan were granted on July 1, 1998 and are divided into three groups. Group 1 consists of time vested options with an exercise price equal to $14.00 per share and vest quarterly in equal installments over a four-year period (subject to accelerated vesting in certain circumstances). Group 2 and Group 3 also consist of time-based options which vest in four equal annual installments on July 1, 1999, July 1, 2000, July 1, 2001 and July 1, 2002 (subject to accelerated vesting in certain circumstances). The first installment of both the Group 2 options and Group 3 options were exercisable at a price of $14.00 per share on July 1, 1999 and subsequent installments are exercisable at a price 15% (or 20% in the case of Group 3 options) greater than the prior year's exercise price for each of the next three years. The 1998 Executive Plan is administered by the Compensation Committee of the Board, which will have exclusive authority to grant awards under the 1998 Executive Plan and to make all interpretations and determinations affecting the 1998 Executive Plan. In the event of any changes in the capital structure of the Company, the Compensation Committee will make proportional adjustments to outstanding awards granted under the 1998 Executive Plan so that the net value of the award is not changed. As of December 31, 2000, there are outstanding options to purchase a total of 2,001,380 shares of Class C Common Stock under the 1998 Executive Plan. Cumulus Media Inc. applies APB Opinion No. 25 in accounting for its Stock Options issued to employees and SFAS No. 123 in accounting for stock options issued to non-employees. Accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had Cumulus Media Inc. determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss attributable to common stockholders would have been increased $8.2 million, $6.8 million and $2.3 million, respectively, to the pro forma amounts for the years ending December 31, 2000, 1999 and 1998 as indicated below (dollars in thousands):
2000 1999 1998 ---- ---- ---- Net loss: As reported................................... $ (2,298) $(13,622) $(11,282) Pro forma..................................... $(10,471) $(20,430) $(13,586) Basic and diluted loss per common share: As reported................................... $ (0.49) $ (1.50) $ (1.55) Pro forma..................................... $ (0.72) $ (1.77) $ (1.69)
F-22 72 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants: 2000 Stock Incentive Plan: expected volatility of 65.0% for 2000; risk-free interest rate of 6.25%; dividend yield of 0% and expected lives of four years from the date of grant. 1999 Executive Stock Incentive Plan and 1999 Stock Incentive Plan: expected volatility of 65.2% for 1999; risk-free interest rate of 5.70% and 5.78%, respectively for the 1999 Executive Stock Incentive Plan and 1999 Stock Incentive Plan; dividend yield of 0% and expected lives of four years and five years from the date of grant for shares issued under the 1999 Executive Stock Incentive Plan and the 1999 Stock Incentive Plan, respectively. 1998 Executive Stock Incentive Plan and 1998 Stock Incentive Plan: expected volatility of 65.6% for 1998; risk-free interest rate of 4.73%; dividend yield of 0% and expected lives of four years and five years from the date of grant for shares issued under the 1998 Executive Stock Incentive Plan and 1998 Stock Incentive Plan, respectively. Following is a summary of activity in the employee option plans and agreements discussed above for the years ended December 31, 2000, 1999 and 1998:
WEIGHTED AVERAGE SHARES EXERCISE PRICE ------ ---------------- Outstanding at December 31, 1997............................ -- $ 0.00 Granted..................................................... 3,142,925 15.56 Exercised................................................... -- 0.00 Canceled.................................................... (20,800) 14.00 --------- ------ Outstanding at December 31, 1998............................ 3,122,125 15.55 --------- ------ Granted..................................................... 1,998,125 26.70 Exercised................................................... (27,580) 14.00 Canceled.................................................... (8,561) 14.00 --------- ------ Outstanding at December 31, 1999............................ 5,084,109 19.94 --------- ------ Granted..................................................... 2,063,431 6.19 Exercised................................................... -- 0.00 Canceled.................................................... (814,449) 19.28 --------- ------ Outstanding at December 31, 2000............................ 6,333,091 $15.74 --------- ------
The weighted average fair value of options granted during the years ended December 31, 2000, 1999 and 1998 was $3.51, $13.49 and $6.43, respectively. The following table summarizes information about stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING ------------------- WEIGHTED AT AVERAGE NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE RANGE OF EXERCISE PRICES AT DECEMBER 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE ------------------------ -------------------- ------------------- ---------------- $3.9375 (2000 SIP Shares).................. 200,000 3.75 years $3.9375 $6.4375 (2000 SIP Shares).................. 1,528,300 3.5 years $6.4375 $6.4375 (1999 SIP Shares).................. 300,000 3.5 years $6.4375 $14.00 (1998 SIP Class A Shares)........... 784,223 2.5 years $ 14.00 $14.00 (1998 ESIP Class C Shares).......... 969,419 1.5 years $ 14.00 $16.10 to $24.19 (1998 ESIP Class C Shares).................................. 1,031,961 2.5 years $ 19.59 $27.875 (1999 SIP Class A Shares).......... 519,188 3.5 years $ 27.88 $27.875 (1999 ESIP Class C Shares)......... 1,000,000 2.5 years $ 27.88 --------- ------- 6,333,091 $ 15.74 ========= =======
F-23 73 The following table summarizes information about stock options exercisable at December 31, 2000:
OPTIONS EXERCISABLE ------------------- WEIGHTED AT AVERAGE NUMBER EXERCISABLE REMAINING WEIGHTED AVERAGE AT DECEMBER 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE -------------------- ------------------- ---------------- $3.9375 (2000 SIP Shares).................. -- 3.75 years $3.9375 $6.4375 (2000 SIP Shares).................. -- 3.75 years $6.4375 $6.4375 (1999 SIP Shares).................. 114,269 3.75 years $6.4375 $14.00 (1998 SIP Class A Shares)........... 476,538 2.5 years $ 14.00 $14.00 (1998 ESIP Class C Shares).......... 522,571 1.5 years $ 14.00 $16.10 to $24.19 (1998 ESIP Class C Shares).................................. 556,285 1.5 years $ 19.59 $27.875 (1999 SIP Class A Shares).......... 191,305 3.5 years $ 27.88 $27.875 (1999 ESIP Class C Shares)......... 375,000 2.5 years $ 27.88 --------- ------- 2,235,968 $ 15.74 ========= =======
11. INCOME TAXES Income tax expense (benefit) for the years ended 2000, 1999, and 1998 consisted of the following (dollars in thousands):
2000 1999 1998 ---- ---- ---- Current tax expense: Federal............................................ $ -- $ -- $ -- State and local.................................... 126 ---- ------- ------- Total current expense........................... $ -- $ -- $ 126 ==== ======= ======= Deferred tax expense (benefit): Federal............................................ 710 (6,032) $(4,057) State and local.................................... 102 (838) (562) Less: Change in valuation allowance.................. -- -- (335) Change in valuation allowance due to purchase accounting...................................... -- -- 2,602 ---- ------- ------- Total deferred expense (benefit)................ 812 (6,870) (2,352) ---- ------- ------- Total income tax (benefit) expense.............. $812 $(6,870) $(2,226) ==== ======= =======
Total income tax expense differed from the amount computed by applying the federal standard tax rate of 35% for the years ended December 31, 2000 and 1999 due to the following (dollars in thousands):
2000 1999 1998 ---- ---- ---- Pretax loss at federal statutory rate............... $(520) $(7,172) $(4,108) State income tax expense, net of federal 102 (838) (1,057) benefit........................................ Nondeductible stock compensation.................. -- -- -- Nondeductible goodwill............................ 1,112 929 400 Other............................................. 118 211 272 Change in valuation allowance..................... -- -- (335) Change in valuation allowance due to purchase -- -- 2,602 accounting..................................... ----- ------- ------- Net income tax (benefit) expense.................. $ 812 $(6,870) $(2,226) ===== ======= =======
F-24 74 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2000 are presented below (dollars in thousands):
2000 1999 ---- ---- Deferred tax assets: Net operating loss......................................... $46,109 $15,996 Accounts receivable...................................... 6,320 1,041 Property and equipment................................... -- 1,356 Accrued expenses and other............................... 5,646 479 ------- ------- Total deferred tax assets........................... $58,075 $18,872 Deferred tax liabilities: Intangible assets........................................ 51,553 25,100 Property and equipment................................... 6,079 2,678 Deferred gain on exchange of assets...................... 30,109 -- Other.................................................... -- 34 ------- ------- Total deferred tax liabilities........................... 87,741 27,812 ------- ------- Net deferred tax liability............................... $29,666 $ 8,940 ======= =======
Deferred tax assets and liabilities are computed by applying the U.S. federal income tax rate in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carryforward. In 1997 the Company established a valuation allowance against its deferred tax assets following an assessment of the likelihood of realizing such amounts. In arriving at the determination as to the amount of the valuation allowance required, the Company considered its operating history as well as significant acquisitions made in 1998 and pending acquisitions, statutory restrictions on the use of operating losses, tax planning strategies and its expectation of the level and timing of future taxable income. The valuation allowance was eliminated in a subsequent period. The Company has not recorded a valuation allowance against its deferred tax assets as of December 31, 2000 and 1999 because management believes that, after considering all the available objective evidence, it is more than likely than not that these assets will be realized. The foreign operations of the Company have incurred operating losses, the benefit of which remains unlikely. Accordingly, the Company has not recognized a tax benefit for these loss carry forwards since it is not assured it could utilize the loss carry forward in the future. At December 31, 2000, the Company has a federal net operating loss carry forward available to offset future income of approximately $115.6 million, which will begin to expire after 2012. 12. EARNINGS PER SHARE The following table sets forth the computation of basic loss per share for the years ended December 31, 2000, December 31, 1999 and December 31, 1998. In order to reflect the initial public offering on July 1, 1998, the weighted average number of shares outstanding for the period January 1, 1998 through June 30, 1998 was F-25 75 determined after giving effect to the exchange of the Company's shares by Cumulus Media, LLC for the initial public offering (in thousands, except per share data).
2000 1999 1998 ---- ---- ---- Numerator: Net loss before extraordinary item............ $ (2,298) $(13,622) $ (9,445) Preferred stock dividend, including redemption premium.................................... (14,875) (23,790) (13,591) -------- -------- -------- Numerator for basic earnings per share -- income available for common stockholders............................... $(17,173) $(37,412) $(23,036) -------- -------- -------- Denominator: Denominator for basic earnings per share -- weighted average shares after giving effect to initial public offering................. 35,139 24,938 16,085 -------- -------- -------- Basic and diluted loss per common share -- before extraordinary item......... $ (0.49) $ (1.50) $ (1.43) Extraordinary item............................ -- -- (0.12) -------- -------- -------- Basic and diluted loss per common share....... $ (0.49) $ (1.50) $ (1.55) ======== ======== ========
During 2000 the Company issued options to key executives and employees to purchase shares of common stock as part of the Company's stock option plans. At December 31, 2000, 1999 and 1998 there were options issued to purchase the following classes of common stock:
2000 1999 1998 ---- ---- ---- Options to purchase Class A common stock...... 3,331,711 2,114,309 1,120,745 Options to purchase Class C common stock...... 3,001,380 3,001,380 2,001,380
The Series B Preferred Stock was convertible into 634,840 shares of Class B Common Stock at December 31, 2000. Earnings per share assuming dilution has not been presented as the effect of the options and the Series B Preferred Stock would be antidilutive for the years ended December 31, 2000, 1999 and 1998. 13. LEASES The Company has noncancelable operating leases, primarily for office space and various capital leases primarily for equipment and vehicles. The operating leases generally contain renewal options for periods ranging from one to ten years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases (excluding those with lease terms of one month or less that were not renewed) was approximately $5.7 million, $3.9 million and $2.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2000 are as follows (Dollars in thousands):
YEAR ENDING DECEMBER 31: ------------ 2001................................................... $4,871 2002................................................... 3,939 2003................................................... 3,567 2004................................................... 3,034 2005................................................... 2,390 Thereafter............................................. 4,134
F-26 76 14. COMMITMENTS AND CONTINGENCIES As of December 31, 2000 the Company has entered into various agreements to acquire stations across 16 markets for an aggregate purchase price of approximately $186.6 million. Between January 1, 2001 and January 18, 2001, the Company closed on the acquisition of 7 properties in 2 markets representing $106.2 million in purchase price. The ability of the Company to complete the pending acquisitions is dependent upon the Company's ability to obtain additional equity and/or debt financing. We intend to finance the pending acquisitions with cash on hand, the proceeds of our credit facility or future credit facilities, issuance of preferred stock and other to be identified sources. There can be no assurance the Company will be able to obtain such financing. As of December 31, 2000, $31.9 million of escrow deposits were outstanding related to pending transaction. Subsequent to December 31, 2000, $13.2 million of deposits were applied toward transactions completed. In the event that the Company can not consummate these acquisitions because of breach of contract, the Company may be liable for approximately $18.7 million in purchase price. The Company had been named as a defendant in the following eleven class action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc., et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v. Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus Media Inc., et al.; (7) Kincer v. Weening, et al.; (8) Krim v. Cumulus Media Inc., et al.; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening, et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former directors and officers of the Company, and certain underwriters of the Company's stock, have also been named as defendants. The complaints have all been filed in the United States District Court for the Eastern District of Wisconsin. They were filed as class actions on behalf of persons who purchased or acquired Cumulus Media common stock during various time periods between May 11, 1999 and April 24, 2000. On August 4, 2000, the eleven actions were consolidated into a single action, also pending in the United States District Court for the Eastern District of Wisconsin. On December 8, 2000, plaintiffs served a Second Amended Consolidated Class Action Complaint, which alleges, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and Sections 11 and 12(a) of the Securities Act of 1933, and seeks unspecified damages. The plaintiffs allege that the defendants issued false and misleading statements and failed to disclose material facts concerning, among other things, the Company's financial condition as a result of the restatement on May 26, 2000 of the Company's results for the first three quarters of 1999. The plaintiffs further allege that because of the issuance of false and misleading statements and/or failure to disclose material facts, the price of Cumulus Media stock was artificially inflated. On February 8, 2001, the Company served its motion to dismiss the second amended complaint. Although the Company has certain defenses it intends to vigorously assert in these proceedings, the Company cannot predict how the plaintiffs' claims will ultimately be resolved. In the event there were a decision adverse to the Company, or pursuant to a settlement agreement, the Company could ultimately be obligated to make payments including payments which may not be covered by insurance. Such payments could have a material adverse effect on the Company's financial position, results of operations or cash flows. In 1999, the Company was served with a complaint filed in state court in New York, seeking approximately $1.9 million in damages arising from the Company's alleged breach of national representation agreements. To date, the Company has filed an answer to the complaint which denies liability and asserts a variety of affirmative defenses. On February 15, 2001, the Company's current national representation agent agreed to indemnify, defend and hold harmless the Company against any loss, liability, cost or expense in connection with this matter. In 1999, the Company was served with a complaint filed in county court in Alabama alleging that in August 1997, an employee of Colonial Broadcasting, Inc., which we acquired in July 1998, was at fault in connection with an automobile accident. The plaintiff is seeking $8.5 million damages. We believe we have a right to indemnification from the sellers of Colonial Broadcasting under the related purchase agreement. The seller's insurance company has assumed the defense of the matter. At the present time, it is not possible to determine the likelihood of a favorable outcome or estimate the range of potential loss in this matter, if any. F-27 77 In addition, we currently and from time to time are involved in litigation incidental to the conduct of our business. Other than as discussed above, the Company is not a party to any lawsuit or proceeding which, in our opinion, is likely to have a material adverse effect. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash equivalents, receivables, payables, and accrued expenses approximate fair value due to the short maturity of these instruments. The Company calculates the fair value of its debt using the present value of the contractual interest and principal payment streams, at contractual interest/coupon payment rates compared to market/trading rates and yields, as published by the market makers in the Company's debt securities. At December 31, 2000 the carrying amount of the Notes was $160.0 million, and the fair value approximated $128.0 million. The Company calculates the fair value of the Series A Preferred Stock using the present value of the contractual dividend and principal payment streams, at contractual dividend rates compared to market trading rates, as published by the market makers in the Company's Series A Preferred Stock. At December 31, 2000 the Company's carrying amount of the Series A Preferred Stock was $114.0 million, and the fair value approximated $82.0 million. It is not practical to determine the fair value of the Series B Preferred Stock. 16. RELATED PARTY TRANSACTIONS Lewis W. Dickey, Jr. and John Dickey each have a 25% ownership interest in Stratford Research, Inc., an entity that provides programming and marketing consulting and market research services to the Company. Under an agreement with Stratford Research, Inc., Stratford Research, Inc. receives $25,000 to evaluate programming at target radio stations. Annual strategic studies cost the Company a minimum of $25,000 negotiable depending on competitive market conditions. Additionally, Stratford Research, Inc. will provide program-consulting services for contractually specified amounts over the three years of the agreement. It is management's belief that the contracted rates included in the agreement for program research services to be provided are favorable to the Company as compared with similar services provided by other unaffiliated parties in the industry. Total fees paid to Stratford Research by the Company during 2000, 1999 and 1998 were $4.1 million, $4.4 million and $2.7 million, respectively. Of these expenses paid in 2000, 1999 and 1998, $1.1 million, $1.1 million and $1.2 million were capitalized as acquisition costs. The remaining expenses have been included as part of the station operating expenses in the statements of operations. At December 31, 2000, 1999 and 1998 amounts payable to Stratford Research, Inc. were approximately $0.2 million, $0.3 million and $0.4 million, respectively. QUAESTUS Management Corporation, an entity controlled by Mr. Weening, historically provided industry research, market support and due diligence support services, and transaction management for the Company's acquisitions and provided certain corporate finance and related services in support of the Company's treasury function. During 2000, 1999 and 1998, the Company paid QUAESTUS Management Corporation $1.5 million, $1.4 million and $1.4 million respectively for acquisition, corporate finance, and business and systems development services. Under an agreement with QUAESTUS Management Corporation, QUAESTUS Management Corporation received a specified rate per transaction between $15,000 and $60,000 depending on the number of FM stations acquired in the transaction, and conditioned on consummation of those transactions. In addition, the Company was obligated to reimburse QUAESTUS Management Corporation for all of its expenses incurred in connection with the performance of services under such agreement. It is management's belief that the contract rates included in the agreement for diligence support, transaction management and other services were favorable to the Company and were comparable to similar rates charged by unaffiliated parties in the market. On June 29, 2000 the Company's Board of Directors terminated the QUAESTUS consulting contract effective June 30, 2000. Of the total payments made to QUAESTUS in 2000, 1999 and 1998, $0.5 million, $0.8 million, and $1.2 million were capitalized as acquisition costs. The remaining expenses have been included as part of the corporate general and administrative expenses in the statements of operations. At December 31, 2000, 1999 and 1998 amounts F-28 78 payable to Quaestus Management Corporation were approximately $0.3 million, $0.1 million and $0.1 million. In addition, QUAESTUS Management Corporation and the Company share certain office facilities and administrative services, on a pro rata basis according to usage. The Company paid Cumulus Media, LLC management fees of $0.2 million in 1998 (with QUAESTUS Management Corporation receiving $0.1 million of such fees from Cumulus Media, LLC and DBBC of Georgia, LLC, receiving $0.1 million of such fees from Cumulus Media, LLC). The fees paid to Cumulus Media, LLC have terminated. Lewis W. Dickey, Jr. and John Dickey have a 75% and 25% ownership interest in DBBC of Georgia LLC, respectively. Additionally, on November 23, 1999 QUAESTUS Management Corporation and the Company entered into a Sublease Agreement as co-sublessees, which provided for the use of a 1989 Cessna Citation III model aircraft. QUAESTUS Management Corporation and the Company are obligated to pay the sublessor rent of $0.1 million per month, plus an hourly rate for each hour of flight. QUAESTUS Management Corporation acted as the manager of the aircraft, hiring pilots, arranging for maintenance and scheduling usage. Expenses for the use of the aircraft were billed to the Company based upon the percentage of hours of Company use. The Company incurred aircraft related expenses of $0.2 million and $0.5 million in 1999 and 2000, respectively. As of December 31, 2000, there remains $0.4 million payable to QUAESTUS under this agreement. The Company's sublease agreement was terminated effective December 31, 2000. On February 2, 2000 the Company loaned each of Mr. Weening and Mr. Dickey $5.0 million, respectively for the purpose of enabling Mr. Weening and Mr. Dickey to purchase 128,000 shares of newly issued shares of Class C Common Stock from the Company. The price of the shares was $39.00 each, which was the approximate market price for the Company's Class A Common Stock on that date. The loans are represented by recourse promissory notes executed by each of Mr. Weening and Mr. Dickey which provide for the payment of interest at the greater of 9.0% or the maximum rate paid by the Company under its Credit Facility. Interest accrues on the notes from February 2, 2000 through December 31, 2003 and is payable on that date. All accrued and unpaid interest and the principal amount of the loans are due and payable in a lump sum on December 31, 2003. As of December 31, 2000, the original principal of $5.0 million plus accrued interest remains outstanding from both Mr. Weening and Mr. Dickey. One of the Company's Directors is Mr. Ralph B. Everett. Mr. Everett is a partner with the Washington, D.C. office of the law firm of Paul, Hastings, Janofsky & Walker LLP, where he heads the Firm's Federal Legislative Practice Group. The Company also engages the law firm of Paul, Hastings, Janofsky & Walker LLP on numerous matters dealing with compliance with federal regulations and corporate finance activities. Total amounts paid to Paul, Hastings, Janofsky & Walker LLP during fiscal 2000, 1999 and 1998 were approximately $1.0 million, $2.1 million and $1.2 million. Of these amounts paid in 2000, 1999 and 1998, $0.8 million, $2.0 million and $1.1 million were capitalized as acquisition or financing costs. The remaining amounts have been included as part of the corporate general and administrative expenses in the statements of operations. At December 31, 2000, 1999 and 1998 amounts remaining payable to Paul, Hastings, Janofsky & Walker LLP were approximately $0.4 million, $0.3 million and $0.6 million. One of the Company's Directors is Eric P. Robison. Since January 1994, Mr. Robison has worked for Vulcan Northwest, Inc., the holding company that manages all personal and business interests for investor Paul G. Allen. In this role Mr. Robison serves as a Business Development Associate for Vulcan Ventures, Inc., the venture fund division of Vulcan and investigates and secures investment opportunities. In 1999 and 2000, the Company retained Mr. Robison to provide consulting services relating to the development of the Cumulus Internet Services Inc. business plan. During 2000 and 1999, the Company paid Mr. Robison $15,000 and $10,000 respectively for consulting services. 17. DEFINED CONTRIBUTION PLAN Effective January 1, 1998, the Company adopted a qualified profit sharing plan under Section 401(k) of the Internal Revenue Code. All employees meeting eligibility requirements are qualified for participation in the plan. Participants in the plan may contribute 1% to 15% of their annual compensation through payroll deductions. Under the plan, the Company will provide a matching contribution of 25% of the first 6% of each F-29 79 participant's contribution. Matching contributions are to be remitted to the plan by the Company monthly. During 2000 and 1999, the Company contributed approximately $0.4 million and $0.3 million to the plan respectively. 18. GUARANTORS' FINANCIAL INFORMATION Certain of the Company's direct and indirect subsidiaries (all such subsidiaries are directly or indirectly wholly owned by the Company) will provide full and unconditional guarantees for the Company's senior subordinated notes on a joint and several basis. There are no significant restrictions on the ability of the guarantor subsidiaries to pay dividends or make loans to the Company. The following tables provide consolidated condensed financial information pertaining to the Company's subsidiary guarantors. The Company has not presented separate financial statements for the subsidiary guarantors and non-guarantors because management does not believe that such information is material to investors (dollars in thousands).
DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Current assets............................ $ 127,959 $ 91,509 $ 44,861 Noncurrent assets......................... 1,040,000 594,670 444,977 Current liabilities....................... 14,885 12,135 8,370 Noncurrent liabilities.................... 260,671 61,048 32,396
DECEMBER DECEMBER DECEMBER 2000 1999 1998 -------- -------- -------- Net revenues.............................. $ 223,539 $177,667 $98,786 Operating expenses........................ 187,316 131,050 90,775 Income (loss) before extraordinary item... (11,599) (10,336) (7,744) Net loss.................................. (11,599) (10,336) (7,744)
19. QUARTERLY RESULTS (UNAUDITED) The following table presents the Company's selected unaudited quarterly results for the eight quarters ended December 31, 2000 (dollars in thousands).
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- For the Year Ended December 31, 2000 Net revenue....................................... $ 47,717 $ 62,627 $ 58,127 $ 57,440 Operating income (loss)........................... (10,346) (8,940) (19,354) (10,071) Net income (loss)................................. (10,120) (9,083) 24,298 (7,393) Net income (loss) attributable to common stockholders................................... (13,648) (12,725) 20,489 (11,289) Basic and diluted loss per common share........... $ (0.39) $ (0.36) $ 0.58 $ (0.32) For the Year Ended December 31, 1999 Net revenue....................................... $ 31,211 $ 45,846 $ 47,293 $ 55,669 Operating income (loss)........................... (4,838) 3,063 4,553 (1,020) Net income (loss)................................. (7,125) (2,213) 184 (4,468) Net loss attributable to common stockholders...... (11,670) (6,965) (4,764) (14,013) Basic and diluted loss per common share........... $ (0.59) $ (0.35) $ (0.17) $ (0.43)
20. SUBSEQUENT EVENTS (UNAUDITED) From January 1, 2001 through January 18, 2001, the Company completed acquisitions of 7 radio stations in 2 separate markets for an aggregate purchase price of approximately $106.2 million. These transactions will be accounted for by the purchase method of accounting. F-30 80 On January 3, 2001, the Company borrowed $2.5 million under its seven-year revolving credit facility. Proceeds from this borrowing we used to satisfy operating cash needs. On February 2, 2001 and following the closing of the Phase III Clear Channel divestitures, this borrowing was subsequently repaid in its entirety. On January 18, 2001, the Company completed substantially all of the third and final phase of an asset exchange and sale transaction with certain subsidiaries of Clear Channel Communications. Upon the closing , the Company transferred 44 stations in 8 markets in exchange for 4 stations in 1 market and approximately $36.2 million in cash. As of the close date, the Company also received approximately $2.7 million in proceeds previously withheld from the second phase of the Clear Channel transactions. On March 13, 2001, the Company divested The Advisory Board of Nevada, a wholly owned subsidiary of the Company. No proceeds were realized by the Company upon divestiture. F-31 81 SCHEDULE II CUMULUS MEDIA INC. FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ---------------------------------------------------------- BALANCE PROVISION AT FOR BALANCE BEGINNING DOUBTFUL ACQUIRED AT END FISCAL YEAR OF YEAR ACCOUNTS STATIONS(1) WRITE-OFFS OF YEAR ----------- --------- --------- ----------- ---------- ------- 2000 Allowance for doubtful accounts............ $3,118 23,751 1,859 (11,380) $17,348 1999 Allowance for doubtful accounts............ $ 895 2,504 61 (342) $ 3,118 1998 Allowance for doubtful accounts............ $ 125 964 97 (291) $ 895
- ------------------------- (1) Allowance for doubtful accounts receivable acquired in acquisitions. F-32 EX-23.1 2 c61336ex23-1.txt CONSENT OF KPMG LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Cumulus Media Inc.: We consent to incorporation by reference in the registration statements on Form S-8 (No. 333-68487 and No. 333-58969) and Form S-3 (No. 333-94323) of Cumulus Media Inc. of our report dated March 14, 2001, relating to the consolidated balance sheet of Cumulus Media Inc. and subsidiaries as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended, and the related schedule, which report appears in the December 31, 2000, Annual Report on Form 10-K of Cumulus Media Inc. /s/ KPMG LLP Chicago, Illinois March 30, 2001 EX-23.2 3 c61336ex23-2.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-68487 and No. 333-58969) and Form S-3 (No. 333-94323) of Cumulus Media Inc. of our report, dated April 13, 2000, relating to the consolidated financial statements and financial statement schedule, which appears in this Annual report on Form 10-K. /s/ PricewaterhouseCoopers LLP Chicago, Illinois March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----